ABSTRACT This study investigates the impact of the U.S.–China trade shock on intra‐firm pay inequality in China. Using a sample of Chinese A‐share listed firms from 2015 to 2021, we employ a multi‐period difference‐in‐differences framework that exploits industry‐level tariff exposure as a quasi‐natural experiment. Our results reveal that the trade shock significantly suppresses both average wages and the vertical wage dispersion between executives and rank‐and‐file employees. This risk‐sharing effect is more pronounced in state‐owned enterprises and high‐R&D‐intensive firms. Mechanism analysis indicates that the trade friction narrowed wage disparities primarily by tightening firms' financing constraints and reducing internal cash flows. These findings suggest that in response to major external shocks, internal compensation structures may be shaped more by considerations of organizational stability and cohesion than by managerial power alone.
Zhao et al. (Fri,) studied this question.