w) its influence was considerably reduced having a growing portion of wages being non-regulated. In a competitive market, regional disparities would attract migration from low earning regions to regions with higher pay reducing wage differentials over time (Yang, 2005). However, this assumption can only function in presence of complete labor mobility, not to mention that it assumes that wages are the only determinant and relocation of a human being is as simple as shifting money from a low interest country to a high interest country. With a large migrant population and a continuous shift from rural to urban areas, labor mobility seems to be present in China. However, the hukou system still continues to be a major constraint and an institutional barrier. Workers may migrate to higher paying urban areas in hope to find employment, but pre-reform institutions create a major obstacle, putting them at a disadvantage while providing employers greater bargaining power.the low skill sector with an enormous pool of workers looking for jobs and intense rural-urban competition, supply and demand result in low wages, poor working conditions and job security. Workers cannot be sure to keep their current job, nor can they rely on their source of income as the flexible labor market will lay them off in an economic downturn as quickly as it has hired them. To make matters worse a large informal sector combined with weak enforcement of laws may strip workers of nearly all their rights. Neoclassical theory would prescribe that workers leave the labor force under unfavorable working conditions. Considering, that welfare and social security is basically non-existent, this option does not appear to be feasible for the majority of employees relying on wages for income. With a large pool of labor supply for the low skilled sector, enterprises will seldom be in the situation where they are required to improve working conditions to secure adequate employment numbers. Certainly, workers will try to choose the companies with the best labor conditions and the situation will contribute to high labor turnover at companies with poor working conditions, but the enormous labor pool puts employees who rely on wages at a disa dvantage vis-Г -vis employers. Additionally, high labor turnover will reduce employers willingness to invest in training and may further contribute to an inefficient labor market.the skilled sector the same market conditions apply, but in this case high skilled workers are in a far better condition, enabling them to bargain for higher pay and opt for better positions and conditions if such an opportunity arises. While at the same time the heated competition for skilled and highly skilled employees has come with significant wage increases, wages for unskilled workers have been stagnant and in real terms declining (see eg Rawski, 2003 and Chan, 2005). This the...
