Rising Income Inequality in China : A Race to the Top

Luo, Xubei; Zhu, Nong

Rising Income Inequality in China : A Race to the Top

Autores

Luo, Xubei

Zhu, Nong

Editor

World Bank, Washington, DC

Descripción

Income inequality in China has risen rapidly in the past decades across regions, between rural and urban sectors, and within provinces. The dynamics of divergence across these sub-national areas have taken the form of a "race to the top" - meaning that all segments of the population, including the poor with low education in lagging inland rural areas, have experienced gains in average income. The largest gains have been registered by those with higher income and education in leading coastal urban areas. Using the China Economic, Population, Nutrition and Health Survey data of 1989 and 2004, we show that the most important factors explaining overall inequality are differential returns to schooling and sector of employment. A decomposition analysis based on household income determination shows that the increase in returns to education explains two-thirds of income changes in urban areas and one-sixth in rural areas. The widening income gaps are the consequence of higher growth in leading urban and coastal areas and that the skilled population has benefited more from the economic reforms carried out during the last 25 years. The authors argue that rising income inequality can be part of a normal process of development at a certain stage, and that the dynamics of spatial income divergence in the form of "a race to the top" can be desirable to some extent as it unleashes competitive pressure and creates incentives for investment in skills. Continuing to improve market efficiency and investing in people, in particular improving education service in lagging areas to poor people, are important for sustainable growth and equitable distribution in the long run.

Palabras clave

ABSOLUTE POVERTY, ABSOLUTE VALUE, ACCESS TO EDUCATION, ACCOUNTING, AGGREGATE INCOME, ALLOCATION OF RESOURCES, ANNUAL INCOME, AVERAGE ANNUAL, AVERAGE GROWTH, AVERAGE GROWTH RATE, AVERAGE INCOME, BALANCED GROWTH, BASIC EDUCATION, COMPARATIVE ADVANTAGE, CONSUMER, CONSUMER PRICE INDEX, CONTRIBUTION, CONTRIBUTIONS, COUNTRY REGRESSIONS, DECOMPOSITION ANALYSIS, DEMOGRAPHIC PRESSURE, DENSITY CURVE, DEPENDANT, DEVELOPING WORLD, DEVELOPMENT ECONOMICS, DEVELOPMENT EFFORTS, DEVELOPMENT REPORT, DISPARITY IN INCOME, DISTRIBUTIONAL CHANGES, DISTRIBUTIONAL EFFECT, DISTRIBUTIONAL EFFECTS, DIVERSIFICATION, ECONOMIC DEVELOPMENT, ECONOMIC EFFICIENCY, ECONOMIC GROWTH, ECONOMIC LITERATURE, ECONOMIC MANAGEMENT, ECONOMIC PROGRESS, ECONOMIC REFORM, ECONOMIC REFORMS, ECONOMIC REVIEW, ECONOMIC STUDIES, ECONOMIC TRANSITION, ECONOMICS LETTERS, EDUCATED PEOPLE, EDUCATION LEVEL, EMPIRICAL EVIDENCE, EMPIRICAL FINDINGS, EQUALITY OF OPPORTUNITY, EQUITABLE DISTRIBUTION, FARM ACTIVITIES, FARM ACTIVITY, FARMERS, FINANCIAL CONSTRAINTS, FISCAL CONSTRAINTS, FIXED EFFECTS, FOOD POLICY, FOOD SAFETY, FORMAL EDUCATION, FULL EMPLOYMENT, GINI COEFFICIENT, GINI INDEX, GOVERNMENT POLICIES, GRAIN PRODUCTION, GROWTH EFFECT, GROWTH ELASTICITY, GROWTH PERFORMANCE, HEALTH CARE, HOUSEHOLD DATA, HOUSEHOLD INCOME, HOUSEHOLD INCOMES, HOUSEHOLD LEVEL, HOUSEHOLD MEMBERS, HOUSEHOLD PER CAPITA INCOME, HOUSEHOLD SURVEY, HUMAN CAPITAL, HUMAN CAPITAL INVESTMENT, IMPACT OF EDUCATION, INCOME, INCOME CHANGE, INCOME DIFFERENTIALS, INCOME DISPARITY, INCOME DISTRIBUTION, INCOME DISTRIBUTIONS, INCOME EQUATION, INCOME GAINS, INCOME GAP, INCOME GROWTH, INCOME GROWTH RATE, INCOME INCREASE, INCOME INEQUALITY, INCOME LEVEL, INCOME LEVELS, INCOME POVERTY, INCOME SUPPORT, INCOMES, INCREASE IN INCOME, INDEPENDENT VARIABLES, INEQUALITY FALLS, INEQUALITY MEASURES, INEQUALITY TRENDS, INTERNAL MIGRATION, INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE, INTERNATIONAL PRICE, INTERNATIONAL PRICES, INVESTING, LABOR FORCE, LABOR MARKET, LABOR MARKETS, LAND REFORM, LEVEL OF EDUCATION, LIVING STANDARDS, LOCAL GOVERNMENTS, LOG-NORMAL DISTRIBUTION, LOGARITHMIC SCALE, LONG RUN, LOWER INCOME, MARGINAL RETURNS, MARKET ECONOMY, MEAN GROWTH, MEAN INCOME, MEAN INCOME GROWTH, MEAN VALUE, MEDIAN INCOME, MIDWIFE, MIGRATION, MODERNIZATION, NATIONAL LEVEL, NON-INCOME DIMENSIONS, NURSE, NUTRITION, OPEN ECONOMIES, OWNERSHIPS, PER CAPITA GROWTH, PER CAPITA GROWTH RATE, POLICY IMPLICATIONS, POLICY RESEARCH, POLICY RESEARCH WORKING PAPER, POLITICAL ECONOMY, POOR, POOR GROWTH, POOR HOUSEHOLDS, POOR PEOPLE, POPULATION CENTER, POVERTY ASSESSMENT, POVERTY DATA, POVERTY HEADCOUNT, POVERTY INCIDENCE, POVERTY INDEX, POVERTY LINE, POVERTY LINES, POVERTY MEASURES, POVERTY REDUCTION, POVERTY-GROWTH-INEQUALITY TRIANGLE, POWER PARITY, PRO-POOR, PRO-POOR GROWTH, PRODUCTIVITY, PROGRESS, PROPERTY RIGHTS, PROPORTIONAL CHANGE, PROSPERITY, PUBLIC ENTERPRISES, PUBLIC INVESTMENTS, REAL INCOME, REDUCING POVERTY, REGIONAL DISPARITIES, REGIONAL INEQUALITIES, REGIONAL INEQUALITY, REGIONAL POLICY, REGRESSION RESULTS, RELATIVE IMPORTANCE, RELATIVE INCOME, RELATIVE INCOMES, REMITTANCE, RESOURCE CONSTRAINTS, RESPONSIBILITIES, RETIRED, RETIREMENT, RETIREMENT AGE, RETIREMENT PENSION, RISING INCOME INEQUALITY, RISING INEQUALITY, RURAL, RURAL AREA, RURAL AREAS, RURAL HOUSEHOLD, RURAL HOUSEHOLD INCOME, RURAL HOUSEHOLDS, RURAL INCOME, RURAL INEQUALITY, RURAL LABOR, RURAL POVERTY, RURAL POVERTY RATE, SEGMENTS OF SOCIETY, SENIOR, SIGNIFICANT IMPACT, SKILL LEVEL, SKILLED LABOR, SKILLED WORKER, STOCKS, SUSTAINABLE GROWTH, TYPE OF WORK, UNEMPLOYED, UNEMPLOYMENT, UNEQUAL DISTRIBUTION, URBAN AREAS, URBAN CENTERS, URBAN POPULATION, URBAN POVERTY, URBAN UNEMPLOYMENT, URBAN WORKERS, URBANIZATION, WAGE, WAGE DIFFERENTIALS, WAGE GROWTH, WAGE LEVEL, WAGES, WHITE-COLLAR WORKERS