The Wage Premium of Communist Party Membership in China

What is it about?

Social status and political connections may confer large economic benefits on an individual. Using data from three surveys spanning three decades, we estimate the causal effect of Chinese Communist Party membership on monthly earnings in China. We find that, on average, membership in the Communist Party of China increases monthly earnings and the wage premium has grown in recent years. We explore potential causes and discover evidence that improvements in social networks and social rank, acquisition of job-related qualifications, and greater life satisfaction likely play important roles in increased earnings. In this study, we estimate the wage premium associated with membership in the Chinese Communist Party over the span of three decades. We use data from the China Household Income Project (CHIP), the China Housing Survey (CHS), and the Chinese General Social Survey (CGSS). To estimate the effect of Communist Party membership on monthly earnings, we use a propensity score matching method. We also perform a variety of robustness checks to bolster the credibility of our results. Although the matching method offers several important advantages over the OLS method, it is also prone to bias in the presence of selection on observables. To gauge the presence of potential bias based on selection on unobservable characteristics, we bound the magnitude of the potential bias with Rosenbaum bounds. We report three main findings. First, the propensity score matching technique serves to identify that Communist Party members earn approximately 20% more than non-members do. Our estimated effect sizes complemented those presented in the literature that used data from developing countries and that demonstrated substantial wage benefits associated with political status and social connections. We further bolster the credibility of the estimated effect sizes with several robustness checks; we examine the sensitivity of our results with the matching algorithm method and the estimation technique. Finally, by using a Rosenbaum bounds method, we gauge the potential selection bias due to potential selection on unobservable variables. Second, the evidence from three major surveys suggests that the wage premium has grown modestly over the past three decades. The OLS and propensity score matching results demonstrate that the wage premium associated with party membership has increased. Third, we explore various mechanisms that could explain why party membership could lead to higher wages.

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Photo by Chastagner Thierry on Unsplash

Photo by Chastagner Thierry on Unsplash

Why is it important?

A number of economic studies have examined the ways in which political and social status influence individual economic outcomes. Recent empirical research in developing countries has documented the causal impact of political status on investments, firm value, and wages. All of the findings provide robust evidence that political connections may play an important economic role in the world's most populous economy. These results also shed new light on the reasons why Communist Party membership has more than doubled since the early 1980s and is likely to continue to do so in the future. This study contributes to the empirical literature on the economic benefits of political affiliation in at least four ways. First, we examine the progression of the earnings premium associated with party membership over a period of three decades. Previous studies on the topic rely exclusively on single datasets and therefore could only calculate the wage premium for a single year or a much narrower period. We analyse data from three major Chinese surveys—the China Household Income Project (CHIP), the China Housing Survey (CHS), and the Chinese General Social Survey (CGSS)—which included questions about party membership, earnings, and information on various labour market factors. The datasets cover a period of three decades. Second, we provide empirical evidence that the earnings premium associated with party membership has either remained constant or increased. Third, we show that the estimated earnings premium based on the propensity matching method differs from the one based on the OLS method: the matching estimates are typically lower than the estimated effect size using the OLS method. This finding is consistent with evidence of self-selection into party membership. Finally,

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