The impact of international trade on wage inequality in China’s manufacturing industry

Purpose It is a general idea that the development of foreign trade has some effect on the widening of the wage gap. Three grey incidence models are proposed to measure the wage gaps, and further to study the relationship between foreign trade and wage inequality in China’s manufacturing industry. Design/methodology/approach Wage inequality in China’s manufacturing industry is measured with the grey incidence models based on the absolute, incremental and growth rate of the wages. After dividing the manufacturing industries into high-skill, medium-high-skill, medium-skill, medium-low-skill and low-skill categories based on their skill intensity, the impact of foreign trade on wage inequality is researched by using an econometrics model. Findings By grey incidence analysis, it was found that the wage gap between R&D and non-R&D workers within industries decreased, but the wage gap between industries continued to widen. The growth of exports reduces the intra-industry wage gap in China’s manufacturing industry. Research limitations/implications The results of grey incidence models between industries don’t match the foreign trade, and the impact of foreign trade on wage equality between industries is not analysed. Originality/value Absolute equality degree of grey incidence, incremental equality degree of grey incidence and growth rate equality of grey incidence are constructed, and a new grey incidence model is constructed from the perspective of practical economic significance. The wage gaps within and between industries in China are analysed in depth, revealing the changing dynamics of wage inequality in China.