Wage increases, wage convergence, and the Lewis turning point in China

We examine the wage trends of ordinary workers and the wage convergence between unskilled and skilled workers in China. First, we find that wages in all non-agricultural sectors, wages of migrant workers, and wages of hired workers in the agricultural sector have increased dramatically since 2003. Second, through comparing wage differentials between migrant and urban resident workers and between heterogeneous education groups within migrant workers, and by investigating the changes in the contribution of the returns to education to wage differentials, we find that the wages of unskilled and skilled workers have converged. Both the increasing wage trends and wage convergence are interpreted as evidence supporting the hypothesis that China has passed what can be called the Lewis turning point in the industrial sector. We conclude that the sustainability of economic growth in China requires an upgrading of labor market institutions to accommodate the merging of the rural and urban labor forces. (C) 2011 Elsevier Inc. All rights reserved.