Trade, Technology, and China’s Wage Inequality

China experienced a sharp increase in wage inequality between unskilled and skilled workers in the late 1990s. Using a sample of 1,500 firms in five Chinese cities with available data for 1998 and 2000, we investigate the role of technology and foreign trade in determining China’s wage inequality. We find evidence that conditional on the technology deployed, trade reduces wage inequality in exporting firms. But we also identify an indirect effect where trade increases wage inequality because it tends to induce exporting firms to deploy more skill-biased technologies. While the presence of foreign-funded firms operating in China has no distinctive effect on wage inequality in general, a sharp difference exists between majority and minority foreign-owned firms. We find evidence that majority foreign-owned firms experienced skill-biased technical changes that tend to increase wage inequality while minority foreign-owned firms experienced unskilled-biased technical changes.