The good, the bad: How digital technology shapes welfare for formal and flexible workers?

Abstract

Digital technology has a profound impact on China's labor market. How does the welfare inequality between formal and flexible workers change under the influence of digital technology? In this paper, theoretical and empirical studies are carried out respectively. In theory, the welfare effect of individual dimension is considered based on building a general equilibrium model including market production sector and household production sector; In the empirical aspect, the pooled four-wave data from the China Family Panel Studies (CFPS) from 2014 to 2020 are used to test the effects of digital technology on the welfare inequality between the formal and flexible workers. The findings reveal that digital technology widens wage disparity and non-wage benefit inequality between formal and flexible workers. Sectoral analysis indicates that digital technology significantly increases wage disparity in high-digitalization sectors, while non-wage benefit inequality is primarily exacerbated in low-digitalization sectors. Mechanism analysis demonstrates that the substitution effect and productivity effect negatively impact wage disparity, whereas the creation effect and the flexibility of flexible workers mitigate it. Regarding non-wage benefit inequality, digital skill gaps caused by digital technology exacerbate inequality, while legal efficiency and regulatory quality help alleviate it. In addition, the wage disparity and non-wage benefits inequality between the formal and flexible workers caused by digital technology are significantly different in different education levels, gender, time and regions.