The Wage Premium of Communist Party Membership: Evidence from China

TL;DR

This paper provides causal evidence that Communist Party membership in China significantly increases monthly earnings, with the wage premium growing over time, likely due to social network, qualifications, and social rank improvements.

Contribution

It offers the first causal analysis of the wage premium of Chinese Communist Party membership using longitudinal survey data, addressing previous correlation-based studies.

Findings

Party membership increases monthly earnings

The wage premium has grown in recent years

Social networks and qualifications partly explain the premium

Abstract

Social status and political connections could confer large economic benefits to an individual. Previous studies focused on China examine the relationship between Communist party membership and earnings and find a positive correlation. However, this correlation may be partly or totally spurious, thereby generating upwards-biased estimates of the importance of political party membership. Using data from three surveys spanning more than three decades, we estimate the causal effect of Chinese party membership on monthly earnings in in China. We find that, on average, membership in the Communist party of China increases monthly earnings and we find evidence that the wage premium has grown in recent years. We explore for potential mechanisms and we find suggestive evidence that improvements in one's social network, acquisition of job-related qualifications and improvement in one's social rank and life satisfaction likely play an important role. (JEL D31, J31, P2)