Politicians' egalitarian cultural values and within-firm wage gaps: Evidence from China

Abstract

This paper examines how local government politicians’ egalitarian cultural values affect within-firm wage gaps using data from China. We measure these values through prefecture-level Party Secretaries’ hometown egalitarian cultural orientation and leverage exogenous variation from personnel rotations. Results show that stronger egalitarian values among incumbent officials correlate with narrower wage gaps. Robustness checks, including high-dimensional fixed effects and instrumental variable regressions, address endogeneity concerns such as omitted variable bias. Mechanism analysis reveals that firms adjust wage gaps to secure political legitimacy and government-controlled resources, particularly under heightened regulatory scrutiny or market competition. Furthermore, non-state-owned enterprises aligning wage gaps with officials’ egalitarian values receive preferential treatment, including increased tax rebates and subsidies. These findings underscore the role of local leaders’ cultural preferences in shaping firms’ behaviors.