Abstract: This paper uses subsidy to measure political connection between firm and government , and tries to investigate how firm political connection affect wage inequality of between firm based on more than 1200 thousand firm data from 1999 to 2005. Empirical results show that w age of per worker in subsidy firm is higher than wage of per worker in non-subsidy firm. The wage inequality from subsidy is determined by the quality of subsidy firm rather than the quantity of subsidy. The wage inequality from subsidy does not vary with ow nership of firm and type of subsidy. In particular, market power could limit political connection effect on wage inequality. By analyzing the factor which determine the wage of per worker, this paper reflect political and market power in firm behavior and will deepen our understanding to China ps model.

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