Intra-firm pay gap and labor demand

Based on data from Chinese A-share listed firms from 2006 to 2020, this paper empirically analyzes the impact of the intra-firm pay gap on firms' labor demand. We find that the widening intra-firm pay gap changes the structure of firms' labor demand, increasing the demand for low-skilled labor and decreasing the demand for high-skilled and middle-skilled labor. The effect of the widening intra-firm pay gap on the demand for low-skilled labor is more pronounced in non-state-owned firms, non-manufacturing firms, and firms with high governance level.