Corporate structure, partial privatization, and wage inequality: Evidence from China's split share structure reform

This paper examines the effects of privatizing China's state-owned enterprises (SOEs) on wage distribution and the welfare of the economy. Privatizing profitable SOEs can narrow wage inequality and improve welfare, and it is however accompanied by a business dynamism effect that can widen the skilled-unskilled wage gap. Using China's split share structure reform in 2005 as a quasi-natural experiment, we empirically demonstrate for profitable SOEs a positive relationship between partial privatization and wage gap. Our findings are consistent with the plan to wind down unprofitable SOEs that would not survive without government subsidies.