Labor market formalization and local-migrant wage gap in China: Evidence from 2008 Labor Contract Law

The Chinese labor market had seen changing levels of labor market informality in the past two decades. Rural migrant workers are more likely to be in the informal labor force and earn lower wages. This study bridges the scholarship that separately consider the roles of migration and informal employment in social stratification in China. Drawing on the relational inequality framework, this paper investigates the effects of labor market formalization on the local-migrant wage gap in 2006–2015. I first document the impact of formal worker status on local-migrant wage gap throughout years. I then use two-way fixed effect event analysis to test whether the 2008 Labor Contract Law --- a specific public policy aimed at providing labor protection --- reduced migrants’ disadvantages in earnings. I combine survey data with administrative records to capture place- and time-specific variation in policy implementation. During the years of labor market formalization, having a labor contract started playing a smaller role in local-migrant wage gap. The major national policy to provide labor protection benefited local workers more than it did for migrant workers. Consequently, the implementation of the law enlarged local-migrant wage gap in the short run. The findings shed light on the relationship between labor market regulation and economic inequality.