Persistent effects of initial labor market conditions: The case of China's tariff liberalization after WTO accession

Abstract Using data from Urban Household Survey in China, we investigate the persistent effects of tariff reduction due to WTO accession on the wages of labor market new entrants. Our identification strategy exploits variations in the degrees of tariff reduction across industries, and variations in the pre-WTO industry composition of local employment across Chinese prefecture-level cities. We find that cohorts entering the labor market when regional tariffs are reduced tend to have relatively lower wages. Although these adverse effects of tariff reduction on job-entrants’ wages become weaker over time, they are still persistent after more than six years of labor market experience. We also find that such effects are particularly strong among workers in the tradable sector and the lower education group. Our estimation results are robust to various alternative measures, specifications and estimation methods.