The Impact of Chinese Intermediate Trade on the Relative Wage: Theory and Empirical Analysis

This paper examines the hypothesis that industries engaged in international fragmentation of production have impact on the relative wage between skilled labor and unskilled labor in China. Using a panel data set of Guangdong, Jiangsu, Shanghai, Shandong, Zhejiang, Tianjin, Fujian, Liaoning and Beijing over the period 1999 to 2007, it is found that trade in intermediate inputs has a significant impact on the relative wage gap. Because China evolves in the global fragmentation of production with low value chain manufacturing, wage of unskilled labor has been pressed. At the same time, the technology spill-over and innovation upgrade the value chain of industry, which increases the demand for skilled labor. Trade in intermediate input is positive to the relative wage of skilled labor, and wage gap has been widened.