In contrast to the United States and European countries, China has witnessed a
widening gender pay gap in the past two decades. Nevertheless, the size of the gender
pay gap could still be underestimated as a result of not accounting for the low-wage
women who have dropped out of the labor force. As shown by a large and
representative set of household survey data in China, since the 1980s the female
employment rate has been falling and the gap between male and female employment
rates has been increasing. We estimate the bounds of the raw gender pay gap in China,
taking into consideration the different male and female employment rates. To tighten
the bounds, we use an instrumental variable, having a child aged less than 6 years.
The results support the view that the raw gender pay gap, as large as it has been, is
still underestimated.