Reform of the state-owned enterprise wage determination system and pay gap

Purpose Excessive income inequality is a significant obstacle to achieving shared prosperity in China. Using Chinese listed firms from 2016 to 2021, we test the effect of the reform of the state-owned enterprise wage determination system on the pay gap between executives and ordinary employees. Design/methodology/approach Based on data from Chinese A-share listed companies from 2016 to 2021, we employ the difference-in-differences model to study the impact of state-owned enterprise wage system reform on the pay gap between executives and ordinary employees. Findings We find that the reform narrows the pay gap between executives and ordinary employees. This conclusion holds after a series of robustness tests. Heterogeneity analysis reveals that the effect of the reform on the pay gap is more pronounced for firms in regions with lower income disparity and firms with weaker corporate governance. Mechanism tests indicate that the reform reduces the pay gap by reducing executive compensation rather than affecting ordinary employees' wages. Originality/value This paper provides new evidence on the role of the reform in firms and offers important policy implications for other countries.