Composition effect matters: Decomposing the gender pay gap in Chinese university graduates

The purpose of this article is to decompose the composition effect and wage structure effect of the gender starting pay gap in Chinese university graduates at every quantile. The article aims to determine if the pay gap at every quantile is a result of gender characteristics difference, or the differences in returns to those characteristics. A 2007 Chinese university survey of new graduates employment and capacity conducted by an education research company MyCOS institute is used. This article exploits a counterfactual decomposition analysis using quantile regression to decompose the gender pay gap into one component that is based on differences in characteristics and one component that is based on differences in coefficients across the log wage distribution. We find that the majority of the gender pay differential is attributed to the gender difference in the endowment of human capital and the composition effect explains 30-60% of the pay difference at each quantile of the log wage distribution. It means that female graduates have almost the same rewards to characteristics as their male counterparts, especially at the bottom of the log wage distribution. We also find that female graduates have lower mean work capacity than male graduates and work capacity is positively related with wage. This article provides policy implications on how to reduce the gender pay gap after higher education reform in a transition economy.