Polarization of employment and wages in China

Abstract

In China, between 1995 and 2018, the proportion of workers employed in unskilled job categories grew, while the share holding middle-skilled jobs declined. The resulting income polarization magnified a major redistribution of wages within job categories, which is not only the main component of total income inequality but is also the driving factor contributing to changes in total income inequality over the 1995–2018 period. Our counterfactual simulation results support our conjecture that the large employment shift from middle-skilled to unskilled jobs reflects the adoption of labor-saving technologies and the response to increased demand for services. We believe that our study sheds light on similar transformations in other developing economies.