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How are Wages set in Beijing?

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Disciplines
  • Economics

Abstract

No 2007 – 13 July How are wages set in Beijing? _____________ José De Sousa Sandra Poncet How are wages set in Beijing? José De Sousa Sandra Poncet No 2007 – 13 July How are wages set in Beijing? Contents 1 Introduction 8 2 Theoretical framework 11 2.1 Demand side . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.2 Supply side . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.3 Deviation from the short-run equilibrium . . . . . . . . . . . . . . . . . . . 13 3 Data and estimation issues 14 3.1 Data sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 3.2 Estimation issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 4 Estimation results 19 5 Conclusion 23 6 References 25 3 CEPII, Working Paper No 2007-13. HOW ARE WAGES SET IN BEIJING? NON-TECHNICAL SUMMARY Low labor costs is held as one of the main explanations for China’s success in capturing world export markets. Some observers assert that this situation is temporary, since labor costs are increasing rapidly. Others sustain a different and more permanent scenario. They assert that a population in excess of one billion people represents an extensive labor force. Migration across provinces may thus increase competition on the labor market of export- intensive provinces and allow firms to keep low wages for many years. One would expect, in coherence with findings of the New Economic Geography (NEG), wages to be higher in central locations, with higher economic activity and demand, and lower in peripheral locations. There is some evidence to support this prediction in China (Lin, 2005), since wages in coastal provinces with good market access, like Fujian, Guangdong and Shanghai, are twice higher than the national average. This upward trend may erode the once unbeatable China price. A potential phenomenon compensating this evolution is the internal migrant labor supply, i.e. the additional labor supply each

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