Using annual urban household survey data from 6 provinces in different regions of China,
we analyze the rapid increase in inequality of China’s urban wages from 1988 to 1999. We
describe inequality trends and decompose the changes into those due to changes in the
distribution of worker attributes and those due to changes in the returns to those attributes.
We find that rising returns to unobserved skills, growing regional wage disparities, and
rising returns to education explain most of the inequality increase.