An Empirical Study about the Marketization Degree of Labor Market from the Perspective of Wage Determination Mechanism

Transcription

1 An Emprcal Study about the Marketzaton Degree of Labor Market from the Perspectve of Wage Determnaton Mechansm Qushuo He Shenzhen Insttute of Informaton Technology, Shenzhen 51809, Chna Abstract. Ten years ago, economsts had rased the ssue of whether economc freedom can be measured, and there are a large number of domestc and foregn nsttutons and ndvduals had researched the measure of marketzaton degree, but t s few to measure the market degree of the labor market from the perspectve of wage determnaton mechansm. Ths artcle attempts to nvestgate by usng the stochastc fronter method of wage determnaton mechansms from the mcro-perspectve, and measure the marketzaton degree of labor market, but also examne Chna's labor market and wage reform process, understand and grasp the labor market. At the same tme, the research result wll feedback the effect of labor market reform and promote the reform of labor market. Keywords: Labor market, Wage determnaton mechansm, Marketzaton degree. 1 Background and Objectve Ten years ago, economsts had rased the ssue of whether economc freedom can be measured, and there are a large number of domestc and foregn nsttutons and ndvduals who had researched the measure of marketzaton degree, but t s few to measure the market degree of the labor market from the perspectve of wage determnaton mechansm ([] degree of market about wage). Most researches focus on the part of measure of labor market, whch s the part of the measure of overall market. Ths artcle attempts to use stochastc fronter method to measure the trend about the degree of marketzaton of wage determnaton of Chnese labor market from the perspectve of ndvdual human captal promotng the potental ncome (.e. market value), thereby measurng the marketzaton degree of the labor market. The Research Methods Ths artcle attempts to use stochastc fronter method from the perspectve of wage determnaton mechansm to measure marketzaton degree of labor market, t wll refer K. Lu et al. (Eds.): ICISO 014, IFIP AICT 46, pp , 014. IFIP Internatonal Federaton for Informaton Processng 014

2 64 Q. He to Contreras method of robustness test and add to more related omtted varables such as work experence squared, martal status, sex, occupaton nature except level of educaton, work experence. 3 The Emprcal Analyss 3.1 Stochastc Fronter Approach The basc dea of the stochastc fronter method s as follows. Consderng a group of ndvduals, each ndvdual has the same level of human captal. It s obvous that each ndvdual won t own the same ncome level, because even assumng the same level of human captal, dfferent ndvdual s n dfferent envronments such as the department envronment, famly envronment, workng ndustry etc. and ths wll effect the ncome level of ndvdual. And so dfferent ndvdual wll get dfferent ncome level, and degree of marketzaton of the wage determnaton mechansm wll be dfferent. Therefore, f the ndvduals can get ther potental ncome, then t ndcates that the labor market n ther wage determnaton mechansm s completely market-orented. Stochastc fronter model s as follows 1 : ln E t = α + βx t + v t μt Potental wage (wage border) Random wages border Observatons wage (real wage) That ε = μ ~ N(, σ ) v ~ N(0, σ ) t vt μt t m t t Where represents the number of samples 1 n t s the tme seres, t 1, T Snce ths artcle attempts to get the marketzaton degree of wage determnaton mechansm on the labor market each year, so ths artcle wll adopt sectonal data, and T=1ÂThus, the equaton becomes: t ln α + α X + v μ =1 N (1) E = 0 Here E s the observable ncome of ndvdual, X s a vector of explanatory varables, v s the whte nose, representatve of the random error term, subject to the normal dstrbuton of the expected value of 0, and varance σ v, and s ndependent to μ. μ s non-negatve random varables and can measure the degree of non-marketzaton, subject to the normal dstrbuton of the expected value m, varance σ μ and dscontnuous at 0. Here μ reflects the degree of v 1 The prototype of the model equaton derved from the ncome equaton belongng to Jacob, but here we use stochastc fronter approach to estmate.

3 An Emprcal Study about the Marketzaton Degree of Labor Market 65 non-marketzaton of ndvdual obtanng the potental wage, random tems s lmted to non-negatve, because some ndvduals may get random wages border whch s α + β X + v. The parameters n the Equaton 1 are estmated to use the least squares method and the method of maxmum lkelhood estmaton method. σ λ = σ + μ μ σ v μ ( 0 λ 1 can make σ = σ v + ) () Whch λ represents the proporton of non-marketzaton n the random dsturbance term, σ μ s the varance of the dfference of marketzaton degree, σ s the summaton between σ μ and the varance of the random nose (σ = σ v +σ ). μ We won t use OLS estmaton unless γ = α 0 = α 1 =... = δ = 0. When λ s close to 1, t ndcates that the devaton of the stochastc fronter ncome functon comes manly from random varables μ, and also ndcates that the gap between the real ncome and the boundary ncome (e, potental revenue) prmarly dues to the non-market of wage determnaton mechansm. When γ s close to 0, t ndcates that the gap between the real ncome and the maxmum possble ncome manly dues to the statstcal error. σ μ 3. Data Descrpton and Varable Descrpton In ths paper, we use the Chnese Nutrton and Health Survey (CHNS) data. CHNS s operated by nternatonal research team, and funded by the Amercan Unversty of North Carolna Carolna Populaton Research Center (snce 1989). The survey ncluded 3800 towns and vllages; 14,000 people n total. Ths paper uses 1989, 1991, 1993, 1997, 000 and 004. Snce ths paper attempts to fnd the trend of the dfferent marketzaton degree of wage determnaton mechansm, so each year s as a cross-secton data to analyze n ths paper. It wll remove the rural areas sample and only leave the workng-age populaton n urban areas sample (survey for the resdent Table 1. Defnton of the varables Varable name lnwage logarthm of hourly wage Educaton years of educaton (years) Age Age exp Age - years of educaton -6 Exp work experence squared Gender 1: Men 0: Female Marrage 1: Unmarred 0: Marred The nature of a 1 SOE 0: Non-state-owned enterprses work unt Regonal dummes 1: Elsewhere 0: Guzhou

4 66 Q. He populaton, except to the floatng populaton) because ths paper wll focus manly on of the urban labor market, and remove the observed samples, whch mss basc personal nformaton and employment, ncome nformaton. The remanng samples number s 013 n 1989, 530 n 1993, 175 n 1991,1451 n 1997,741 n 004,1659 n Emprcal Results and Dscusson Ths paper uses stochastc fronter method to estmate the exstence of non-market n the model. The results are shown n Table. Here we use stata statstcal software. 3.4 Analyss Frst we examne the result n Table 3 (a). The emprcal result of usng the maxmum lkelhood method shows that the degree of wage determnaton mechansm of the market s not smply random error dstrbuton. Emprcal results suggest that t can reject the null hypothess at the 5% sgnfcance level. The dfference of marketzaton degree s exsted n the ndvdual of the sample. T-statstcs of λ shows that λ s statstcally non-zero from the Table 3 (a). Table 3 (a) ndcates that the parameter at the 5% sgnfcance level s sgnfcant. λ s close to 1. It ndcates that there are factors from the non-market n the random dsturbance term, other factors come from other exogenous varables such as the statstcal error. In addton, based on the results n 004, we can estmate degree of marketzaton of each ndvdual and calculate the average marketzaton degree of all ndvduals n the sample s 63%, whch ndcates that the degree of non-marketzaton s about 37 percent comparng to the ndvdual of the hghest marketzaton level of wage determnaton on the random border (the hghest marketzaton level of wage determnaton s 1). Fg. 1. Degree of wage determnaton market trend Mentoned before, the results of marketzaton degree of wage determnaton n [] were 5.44%, 8.98%, 3.63% and 78.80% n 1979, 1985, 1990 and 1995, although ths measure s about dfferent year, but from the overlap of the Year 1990 and the 1995, the result s less than Chen s results, whch may be due to the dfferent methods and the dfferent measurement range, so the contrast s not very strong.

5 An Emprcal Study about the Marketzaton Degree of Labor Market 67 Table. Sample statstcs descrpton State sector Non-state sector Years Hourly wage(yuan /hour) Weekly workng hours(h) (1.498) (7.596) Age (years) (10.875) Work experence (years) College and above% (11.501) (0.60) Hgh school% (0.464) Junor% (0.493) Prmary and below% Sex% (Man = 1) (0.04) (0.491) ( 0.436) (7.30) (10.595) (11.) (0.73) (0.465) (0.49) (0.196) (0.490) 0.95 (1.713) (8.594) (10.584) (11.084) (0.8) ( 0.464) (0.496) 0.16 (0.184) (0.491) 3.54 (4.37) (9.333) 36.3 (10.109) (10.831) (0.380) (0.498) 0.96 (0.457) 0.49 (0.1) (0.493) (5.507) (15.138) (11.711) 106 (1.569) (0.63) 0.01 (0.401) 0.56 (0.499) (0.310) (0.488) (5.109) 4.03 (10.366) (9.818).37 (10.510) 0.64 (0.441) (0.500) 0.10 (0.407) (0.066) (0.488) (0.875) (0.38) (1.056) (1.839) 0.00 (0.054) (0.378) (0.500) 0.34 (0.47) (0.431) (1.1) (16.095) (11.8) (1.164) 0.07 (0.165) (0.78) (0.498) 0.31 (0.503) (0.496).35 (4.60) (19.540) (10.1) (10.61) 0.00 (0.00) (0.367) (0.491) (0.505) (0.441) 3.49 (4.416) (17.57) (11.911) (1.779) (0.15) (0.461) (0.501) (0.18) (0.50) (8.889) (10.587) (10.315) 0.47 (10.891) (0.485) 0.73 (0.446) 0.88 (0.453) (0.44) (0.488) (5.435) (16.777) (10.864) (11.761) (0.49) (0.460) (0.498) (0.183) (0.493) Martal status%(marred = 1) 0.0 (0.40) 0.10 (0.407) 0.0 (0.40) (0.36) Note: Fgures n brackets the standard error of the correspondng varable; Source: Chnese Nutrton and Health Survey (CHNS) (0.480) (0.93) 0.58 ( 0.438) 0.63 (0.443) (0.378) 0.53 (0.437) (0.389) (0.358)

6 68 Q. He From Fg. 1, we are sure that marketzaton degree of wage determnaton mechansm frst decreased and then ncreased gradually n the entre tme seres, n 1993 t s obvous turnng pont. Marketzaton degree of wage determnaton has been low before ths pont. The average degree of the whole marketzaton degree s approxmately 0%, the average marketzaton degree gradually ncreases to above 50% after 1997, whch partly shows that Chnese labor market reform s successful. But n absolute terms, compared to developed countres t s substantally lower, because n Unted States t s 86% n the same perod [7]. From the perspectve of human captal nvestment, Table 3 (a) shows that the mpact of educaton on wages border s very sgnfcant, and ts coeffcent ndcates that wage boundary wll rse as the year of educaton s added one (t was 0.7% n 1989, and has been ncreased to 3% n 004). And ths suggests that the mpact year of educaton on wage border s ncreased year by year, and the mpact of experence on wage border s very sgnfcant, but lttle change. Overall, the marketzaton degree of wage determnaton mechansms s low, and ts evoluton path has been relatvely consstent wth Chna s development. For example n Fg. 1, the marketzaton s lower n the early 1990s, whch may be manly two reasons. On the one hand, although the government had began to reform wage before 1993, such as proposng the wage relevant to economc effcency of enterprses n 1984 and also practced varous forms of wage system. But the reforms ddn t change the wage determnaton of enterprse. The dfference of wage determnaton s huge between the two types of market. In result, the ncome gap between the two markets s not only reduced, but expanded. On the other hand, the affecton of wage system reform s not obvous. There are two reasons: One s that the concept of return on human captal n the early 1990s mght not be very clear. At that tme, Chna adopted a unfed wage polcy and the gap s not obvous between the wages of varous postons, so the status of compettve prce system about the margnal productvty compensaton pad to workers s not yet stable, especally n the Chnese state-owned sector, compettve wage payment mechansm s far from establshed. Second s the prce nformaton has been vacant n the state-owned economy, because the nformaton s neffcent and the fact was that workers were short of the nformaton about the work accumulaton wth workers' human captal. More serously, the country's ncome level s very consstent, especally n state-owned enterprses. Although the wage was hgher n non- state-owned enterprses but the staff moblty was not hgh due to socal securty and labor deology. Because labors were lazy to learn about wage nformaton of other companes, so the wage of workers cannot reach ts borders largely. Also from Fg. 1, marketzaton degree of wage determnaton mechansm began to shoot up after 1993, whch ndcates that the labor market stuaton had mproved sgnfcantly. In 1993, the government offcally announced the goal as the socalst

7 An Emprcal Study about the Marketzaton Degree of Labor Market 69 market economc system reform, and selects the 100 state-owned enterprses to mplement the corporate system. State-owned enterprses speed up to change from the plannng system to market economy system. At the same tme, the government began efforts to buld a comprehensve socal securty system. Labor law formally was enacted n The government began to buld macro-gudance system of enterprse wage ncome and establsh wage gudelnes system. Thus seres of market-orented reform made the ndvdual human captal returns to rse naturally. The marketzaton degree of wage determnaton mechansm had been contnuously mproved. 3.5 Stablty Test Ths paper dscusses whether the result s sgnfcantly changed after addng more relevant omtted varables usng Contreras method. Ths paper used the same method to estmate [Equaton 1]. In addton to the above estmates used by the relevant varables (level of educaton, work experence and work experence squared), we now add new varables whch nclude the level of educaton (educaton), work experence (exp) and work experence squared (exp ), martal status (mar), gender, occupaton nature, where corporate ownershp dummy varable (SOE) - to estmate the equaton [Equaton 1]. Estmaton results are n Table 3 (b). t s worth notng that the change of marketzaton degree s small n all tme, and bascally all the newly added varables were sgnfcant. Thus confrms our results stablty. We see that addng gender varable s sgnfcant, suggestng that the mpact of gender on wages boundary s sgnfcant, and wages border of men s average hgher around 7% than women. But we examne that men coeffcent s n 1989 and rses to n 1993, but began to declne after Ths suggests that the mpact of gender on wages border s wanng after Martal status varables are most sgnfcant, and results also ndcate that unmarred can rase wages border around 6% relatve to marred persons, the most mportant fact s the coeffcent of sector s sgnfcant at the 1% level of sgnfcance. Before 000 coeffcent s negatve whch showed that wage boundary n state-owned enterprses was lower than n non-state-owned enterprse. It s consstent wth our expectaton. Due to lack of compettve n SOE labor market early, wages and employment determnaton were more planned (whch has been demonstrated n prevous chapters), so the wages of workers were lower. Rather than non-state-owned enterprses had been n a compettve labor market, so ts wages were relatvely hgher. However ths stuaton has changed from 004 (004 s coeffcent symbol s changed and a very sgnfcant), whch also ndrectly shows that a seres polces about wage and employment of state-owned enterprses play a role and reforms began to show results, partcularly human captal returns gradually ncreased sgnfcantly whch suggests that the marketzaton degree of wage determnaton mechansm gradually ncreased and also shows that the marketzaton degree of the labor market s also mprovng.

8 70 Q. He Table 3. Estmated wage equaton (a) (b) (a) (b) (a) (b) (a) (b) (a) (b) (a) (b) Constant term *** *** *** -.395*** ** **.15***.083** ** Years of ***.0077***.0111***.0103*** *** ***.048***.0668***.0701*** educaton Experence ***.019***.0106***.0104***.014***.016***.009***.0096***.0077**.008***.009***.005** Experence *** *** *** *** *** *** *** *** *** ** ** squared Gender.0578***.0499***.0647***.0616***.0577***.0687*** Martal status ** *** ** State-owned enterprses * *** *** *** *** ***.089***.0869***.037***.0355*** 065***.0601***.0671***.065***.081***.079***.066*** 0.074*** * 0.85** 0.84** 0.85** 0.88** 0.83** 0.83** 0.74** 0.73** 0.78** 0.86** 0.68** 0.67** The average value of the log-lkelhood Number of samples Years The average degree of market Note: *, **, and *** represent 10%, 5% and 1% sgnfcance level, s the varance estmaton parameters

9 An Emprcal Study about the Marketzaton Degree of Labor Market 71 4 Conclusons Ths paper estmates the marketzaton degree of the wage determnaton mechansm. We found that the marketzaton degree of wage determnaton mechansm s very low before the 1990s.1993 was a turnng pont. The marketzaton degree of the wage determnaton mechansm had been low before ths pont. The average degree of the whole marketzaton degree s approxmately 0%, the average marketzaton degree gradually ncreases to above 50% after 1997, whch partly shows that Chnese labor market reform s successful. But n absolute terms, compared to developed countres t s substantally lower, because n Unted States t s 86% n the same perod [7]. Overall, the result s consstent wth the path of Chna's labor market reform. These emprcal studes show that there are some factors that affect non-market-orented. There s not a barganng system between labor and State-owned enterprse, and the government stll plays a key role n wages of workers determnaton. Enterprses have not the autonomy of wage determnaton. The marketzaton degree of wage determnaton n the market s low. Whle workers' barganng power has ncreased n the non-state-owned enterprses, but t s thn n an oversupply of labor market, whch also shows that Chna's labor market need to deepen reform, mprove the marketzaton of wage determnaton mechansm. References 1. SDPC Market and Prce Research Group: Judgment of Chna s economc marketzaton degree. Macroeconomc management () (1996). Zongsheng, C.: Marketzaton process research of Chna s economc system. Shangha People s Publshng House, Shangha (1999) 3. Zhenhua, Z.: Insttutonal change and economc growth. Shangha Jont Publshng, Shangha People s Publshng House, Shangha (1999) 4. Chunbng, X.: The wage determnaton mechansm research of dfferent ownershp enterprses. Economc Research (6), 16 6 (005) 5. Contreras, D., Bravo, D., Medrano, P.: Measurement error, unobservable and skll bas n estmatng the return to educaton n Chle. Workng Paper. Unversdad de Chle, 1 45 (1999) 6. Dckens, W., Kevn, L.: The Reemergence of Segmented Labor Market Theory. The Amercan Economc Revew (5), (1988) 7. Greene, W.: Maxmum lkelhood estmaton of econometrc fronter functons. Journal of Econometrcs 13, 7 56 (1980) 8. Kumbhakar, S.C., Lovell, C.A.K.: Stochastc Fronter Analyss. Cambrdge Unversty Press (000)