This paper analyzes the changes in public-private sector earnings differentials for local residents in
urban China between 2002 and 2007. We find that earnings gaps across ownership sectors decreased
during this period and that the convergence trend has been in favor of the private and semi-public
sectors as opposed to the public sector. This trend is in sharp contrast to what occurred at the turn of
the 21st century when employees the government and state-owned enterprises were found to enjoy a
privileged situation. Differences in endowments are found to play a growing role in explaining
earnings differentials. However, although it is becoming less of an issue, segmentation across
ownership remains important, especially for high-wage earners.