Abstract: “This study reviews the history of China’s wage policy and analyzes the importance of balancing efficiency and equity in the wage reform. Efficiency means wage increase and equity refers to equal distribution of wages among different segments of society. Due to contradictions between efficiency and equity, each country cannot achieve both at one time. The study shows that the shift from equity to efficiency in China’s wage policy increases workers’ wages but also widens wage inequality. Thus, each government has to make tradeoffs between efficiency and equity according to the relatively importance of the two in society”

Keywords: wage reform, efficiency, equity, inequality