Are workers in China underpaid? And if so, what may be the reasons and by how much? We address these questions empirically by deploying a heteroscedastic stochastic frontier model, using nationally representative household surveys of the period of 2003–2008. We estimate that labour underpayment is approximately 43.7% in this period of assessment, a significantly higher figure than the estimates for Western economies. Underpayment in this period takes a U-shape relationship. Determinants of underpayment were proposed by seven hypotheses and confirmed by bootstrap method, except age discrimination. Test results show that intergenerational effects are the most salient factor for underpayment. At the same time, we construct an index to measure the wage distortion in the labour market. Our findings indicate a general trend in which underpayment is increasing and differs between workers of different demographic characteristics and across regions. Our study contributes to the field by applying three models to capture the differing levels of influence of a range of factors on underpayment in the Chinese labour market.
- bootstrap method
- heteroscedastic stochastic frontier model
- underpayment of wages
- wage distortion