FINANCIAL DISCRIMINATION AND WAGE INEQUALITY IN CHINA

Abstract

This paper investigates how financial discrimination influences skilled-unskilled wage inequality in China. In the basic model, we find that a reduction of financial discrimination will reduce skilled-unskilled wage inequality. In the extended model, we find that skilled-unskilled wage inequality will be narrowed down if and only if the substitution elasticity of unskilled labor and the intermediate product in the private sector is larger than that of the skilled labor and capital in the public sector. When considering the reality of China, we predict that a reduction of financial discrimination leads to the decline of wage inequality.