Abstract:

The existing research has not yet answered the question how the labor market segmentation will influence the wage distortion. In this paper, we toke the method of stochastic frontier analysis (SFA) based on translog production function and estimated the wage distortion index of industrial sector in Chinese provinces, and then using the method system GMM which can effectively control the endogeneity problem of estimation, investigated the effects of labor market segmentation and other factors on the wage distortion. We found that: the wage distortion of industrial sector in Chinese provinces is much more serious than the existing researches’ conclusions, which showed an increasing trend, and the wage distortion of the eastern regions was significantly higher than that of the central and western regions; The degree of labor market segmentation in western remote areas is much heavier, but the eastern coastal of which is to a lesser extent; The labor market segmentation and the rising proportion of foreign investment will worsen wage distortion, but the increasing innovation investment, and the implementation of “labor contract law” will ease the wage distortion. Therefore, the government should first gradually eliminate labor market segmentation among the provinces and cities, which helps to ease the degree of wage distortion.