"This paper examines the over-time changes in state and non-state earnings differentials in China's urban labor market between the mid-1990s—the period radical SOE reform--and the mid-2000s—the post-reform period when the effects of the reform became more fully manifested. Using the Urban Household Survey (UHS) comparing two pooled cross-sectional samples from 1994 to 1996 and 2005 to 2007, the findings show that the earnings differentials in favor of the non-state sector workers in the mid-1990s were reversed so that the state sector workers, on average, earned much higher than their counterparts in the non-state sector in the mid-2000s after the sectoral reform. In addition, changes in returns to characteristics, particularly the intercept coefficients, rather than changes in the characteristics, were the major sources to explain the reversal in earnings differentials between state and non-state sector workers at this period."

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