Using annual urban household survey data from 6 provinces in different regions of
China, we analyze the rapid increase in inequality of China’s urban wages from 1988
to 2003. We describe overall and residual inequality trends and use quantile
regression to address the relationship between education and wage inequality. Returns
to education are higher for the low wage individuals in the first half of this period
conditional on their observable characteristics. This suggests that education has a
negative impact upon within-group wage inequality. But the situation is reversed
during the recent half period. Using the Quantile-JMP decomposition technique we
partition the observed distribution of wages into ‘price’ components (wage
coefficients) and ‘quantity’ components (labor force composition) and calculate,
through simulation, the impact of education on changes in overall wage dispersion.
The decomposition shows the rise of male wage dispersion between 1988 and 2003 is
almost entirely accounted for by prices rather than quantities and it attributes a large
proportion to the overall effect of education. From 1988 to1997 education serves as
the equalizing force to decrease wage inequality but it is the primary driving force
which increases the wage inequality between 1997 and 2003. The empirical analysis
also reveals that the overall effect of college and above education category on the
growth of wage inequality is the most pronounced one.