LAUSR

ABSTRACT This study analyzes wage distortion based on ability in the Chinese labour market using a non-parametric approach. We first propose a signalling model by adding regressive wage incentives to describe the non-competitive Chinese labour market. Then, we show that the model primitives are non-parametrically identified and estimable using recently proposed measurement-error methodologies. Using a dataset from the China Health and Nutrition Survey, we provide empirical evidence that wages are mainly lower for a large number of workers compared with their ability levels, especially for female workers with medium ability levels.