Wage premium of Communist Party membership: Evidence from China

• DOI: http://doi.org/10.1111/1468-0106.12318
• Published date: 01 August 2020
• Author: Plamen Nikolov,Hongjian Wang,Kevin Acker
• Date: 01 August 2020

ORIGINAL MANUSCRIPT

Wage premium of Communist Party

membership: Evidence from China

Plamen Nikolov

1,2,3

| Hongjian Wang

1

| Kevin Acker

4

1

State University of New York,

Binghamton, New York, USA

2

Harvard Institute for Quantitative Social

Science, Cambridge, Massachusetts, USA

3

IZA Institute of Labor Economics, Bonn,

Germany

4

The Johns Hopkins University School of

Advanced International Studies and The

Hopkins-Nanjing Center, Nanjing, China

Correspondence

Plamen Nikolov, Department of

Economics, State University of New York

(Binghamton), Department of Economics,

4400 Vestal Parkway East, Binghamton,

NY 13902, USA.

Email: pnikolov@binghamton.edu

Abstract

Social status and political connections may confer large

economic benefits on an individual. Previous studies

focused on China have examined the relationship

between Communist Party membership and earnings

and have revealed a positive correlation. However, the

correlation could be partly or totally spurious. 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 pre-

mium has grown in the last three decades. We explore

potential causes and discover evidence that improve-

ments in social networks and social rank, acquisition of

job-related qualifications and greater life satisfaction

play important roles in increased earnings.

1|INTRODUCTION

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 (Fisman, 2001), firm value

(Erkal & Kali, 2011), and wages (Li, Liu, Zhang, & Ma, 2007). China's rapid economic develop-

ment and its one-party government provide an ideal context to examine the interplay between

political status and economic outcomes. Previous studies have demonstrated that political status

in China could result in numerous economic benefits (Appleton, Knight, Song, & Xia, 2009; Li

et al., 2007; Morduch & Sicular, 2000; Wu, Wu, & Rui, 2012). Party membership provides access

to social networks that impact employment outcomes. Previous studies have also identified

how a social network or improved social status could shape an individual's economic outcomes

(Weiss & Fershtman, 1998).

1

Received: 22 September 2017 Revised: 6 January 2019 Accepted: 13 December 2019

DOI: 10.1111/1468-0106.12318

Pac Econ Rev. 2020;25:309–338. wileyonlinelibrary.com/journal/paer © 2020 John Wiley & Sons Australia, Ltd 309

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 Sur-

vey (CGSS). The Communist Party of China currently boasts over 80 million members with an

annual average growth of approximately 1 million members per year. The party is, and will

likely remain, the largest party in the world.

2

Previous estimates of the effect of political status

on economic outcomes in China relied on OLS estimations, using observational data. Because

such study designs could not separate the possible influence of party membership from that of

other background characteristics on employment outcomes, they could not identify the true

causal effects of party membership on wages. To estimate the effect of Communist Party mem-

bership on monthly earnings, we use a propensity score matching method (Abadie, Drukker,

Herr, & Imbens, 2004; Angrist & Krueger, 1999; Angrist & Pischke, 2008; Imbens, 2004;

Imbens & Rubin, 2015; Imbens & Wooldridge, 2007; Rosenbaum & Rubin, 1983, 1984, 1985).

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 (Das & Dutta, 2007; Madheswaran & Attewell, 2007;

Siddique, 2011). 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 demon-

strate that the wage premium associated with party membership has increased.

Third, we explore various mechanisms that can explain why party membership might lead

to higher wages. Party membership could translate into better employment outcomes due to

several distinct mechanisms. Members could obtain a greater number of job referrals as well as

access to better types of jobs (Morduch & Sicular, 2000) from the wider social network of local

party members. These job referrals could serve to improve employer–employee matches over

time. Finally, some employment opportunities in provincial and local governments are avail-

able only to party members (The Economist, 2014). Based on the available longitudinal data

from one of the data surveys, we examine four main channels: the strength of the individual's

social network, the acquisition of human capital as a party member, the improvement in social

rank, and overall life satisfaction. We provide suggestive evidence of at least three factors that

positively impact the wages of party members: the opportunity to secure a government job, bet-

ter positioning within the job hierarchy, and improvement in overall social rank. We also detect

some evidence (although not statistically significant) that members report being happier than

non-members. In summary, all of the findings provide evidence on the important economic role

that political connections could play in the world's most populous economy.

This study contributes to the empirical literature on the economic benefits of political affilia-

tion in at least four ways.

3

First, we examine the progression of the earnings premium

310 NIKOLOV ET AL.