Contribution of household income components to the level and rise of inequality in urban China

ABSTRACT

This paper investigates how changes in the structure of household income have affected inequality in urban China during the reform period. We conducted an inequality decomposition analysis by income sources using the household-level data from the Chinese Household Income Project Surveys for 1988, 1995 and 2002. The analysis reveals that the contribution of wages and salaries to inequality has declined over the years. Business income, which served as the inequality enhancing component in 1988, has turned into an inequality reducing force in 1995 and 2002. The marginal analysis reveals that 1% increase in business income neutralises about two-thirds of the increase in inequality caused by an equivalent increase in wages and salaries. Some business issues and policy options are discussed.

KEYWORDS:

• China
• urban inequality
• decomposition
• income sources
• reforms

JEL Classification:

• D31
• O15
• I31

Acknowledgements

The first author expresses his gratitude to Fudan University for kind hospitality and financing his visit to Shanghai. The views expressed in the paper are ours and not of the institutions we belong to.

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Notes on contributors

Satya Paul

Satya Paul is a professor of Economics and head of the School of Economics, University of the South Pacific, Suva, Fiji, and former professor of Economics at the University of Western Sydney (2004–2013). He has been consultant to the Indian Planning Commission, National Institute of Public Finance and Policy, New Delhi, UNFPA, ILO and Government of Fiji.

Zhao Chen

Zhao Chen is a director and professor of Economics at China Centre for Economic Studies in Fudan.

Ming Lu

Ming Lu is a distinguished professor and director of Centre for China Development Studies at the Department of Economics, Antai College of Economics and Management, Shanghai Jiao Tong University.