Rural–urban human capital disparity and skilled–unskilled wage inequality in China

• Published date: 01 May 2018
• Author: Jiancai Pi,Pengqing Zhang
• DOI: http://doi.org/10.1111/rode.12370
• Date: 01 May 2018

REGULAR ARTICLE

Rural–urban human capital disparity and

skilled–unskilled wage inequality in China

Jiancai Pi

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Pengqing Zhang

Department of Economics, Nanjing

University, Nanjing, China

Correspondence

Jiancai Pi, Department of Economics,

Nanjing University, 22 Hankou Road,

Nanjing 210093, China.

Email: pi2008@nju.edu.cn

Funding information

the National Social Science Foundation in

China, Grant/Award Number: Grant No.

16BJY080

Abstract

This paper builds three-sector general equilibrium models

to investigate how a shrink of rural–urban human capital

disparity generates an impact on skilled–unskilled wage

inequality in China. In the basic model where the urban

skilled sector and the urban unskilled sector have no

upstream and downstream linkage, we find that the wage

inequality will be narrowed down if the urban skilled sec-

tor is more capital intensive than the urban unskilled sec-

tor. To capture the characteristic of China’s state

capitalism, we build an extended model where the urban

skilled sector acts as an upstream industry for the urban

unskilled sector, and find that the wage inequality will be

reduced if the substitution elasticity of unskilled labor and

intermediate product in the urban unskilled sector is large

enough. When we consider the factual characteristics of

the Chinese economy, our models predict that a shrink of

rural–urban human capital disparity will be helpful to

reduce the skilled–unskilled wage inequality in China.

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INTRODUCTION

The concept of human capital is introduced to mainstream economics by Schultz (1961) and

Becker (1964), which includes health, knowledge, skills, and other intrinsic attributes by defini-

tion. Many studies investigate human capital from different perspectives, which have continually

been a hot spot since the publication of Schultz (1961) and Becker (1964). As far as the Chi-

nese economy is concerned, there are several approaches to investigate human capital. The first

strand of literature aims at measuring and calculating human capital in China (see, e.g., Zhu &

DOI: 10.1111/rode.12370

Rev Dev Econ. 2018;22:827–843. wileyonlinelibrary.com/journal/rode ©2017 John Wiley & Sons Ltd

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Xu, 2007; Li, Liang, Fraumeni, Liu, & Wang, 2013). The second strand of literature analyzes

the formation and accumulation of human capital in China (see, e.g., Heckman, 2005; Liu,

2007; Chi & Qian, 2016.). The third strand of literature explores the effects of human capital

in China through different channels (see, e.g., Liu, 2008; Fleisher, Li, & Zhao, 2010; Fleisher,

Hu, Li, & Kim, 2011; Jiang, Shi, Zhang, & Ji, 2011; Li & Qian, 2011; Pi & Zhou, 2013a;

Yang & Qiu, 2016). For example, Fleisher et al. (2010) find that human capital affects output

and productivity growth at the regional level in China. Fleisher et al. (2011) show that human

capital influences worker productivity and firms’total factor productivity at the firm level in

China. In the sense of the research route, this paper follows the approach of the third strand of

literature.

In China, there exists rural–urban disparity of human capital (see Table 1). Generally speaking,

there are three types of labor in China, that is, rural labor, urban unskilled labor, and urban skilled

labor. Urban skilled labor has the highest level of human capital, rural labor has the lowest level

of human capital, and urban unskilled labor has the intermediate level of human capital. When

rural labor migrates from rural areas to urban areas and works in the urban unskilled sector, rural

labor’s human capital level is lower than that of urban unskilled labor , and the gap between them

is regarded as rural–urban disparity of human capital in this paper’s sense. There is much empirical

evidence that supports the existence of such disparity in China (see, e.g., D

emurger, Gurgand, Li,

& Yue, 2009; Pi & Zhou, 2013a, p. 6). Many studies theoretically explore the effects of rural–ur-

ban human capital disparity. For example, Li and Qian (2011) investigate the impacts of such dis-

parity on industrial output, profit, and social welfare in China. Pi and Zhou (2013a) analyze how

such disparity influences the socioeconomic segmentation and integration in China. However, the

existing literature neglects to theoretically explore how such disparity affects the skilled–unskilled

wage inequality in China, although empirical data support that there exists the wage gap between

TABLE 1 China’s rural–urban human capital disparity in 2000 and 2010 based on the census data

Education

Below primary

school (%)

Primary

school (%)

Junior high

school (%)

Senior

high school (%)

Above senior

high school (%)

Average

education

years

2000

Overall 11.6 31.5 38.4 9.8 8.8 7.9

Urban 6.5 18.9 38.9 16.6 19.1 9.7

Rural 14.9 39.6 38.0 5.4 2.1 6.8

Gap –8.4 –20.6 0.9 11.2 16.9 2.9

2010

Overall 5.6 24.6 43.3 15.3 11.1 9.0

Urban 3.1 15.6 40.0 22.2 19.2 10.3

Rural 8.3 34.4 46.9 7.9 2.4 7.6

Gap –5.2 –18.8 –7.0 14.2 16.8 2.6

Note: The statistics are based those in the population who were 18 years old or older at the time of census. The census data and the

survey data have different statistical specifications, so they cannot be compared directly. Since the average education year of urban

unskilled labor is lower than that of urban labor, we can infer that there exists a large human capital gap between rural labor and

urban unskilled labor.

Source. Authors’calculations based on the 5th and the 6th Population Census of the People Republic of China.

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PI AND ZHANG