Inequality of China

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Inequality of China
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Discussion Topics

• How to measure inequality?
• Ways to decompose inequality
• Why would inequality differ before and after the
  reform?

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How to Measure Inequality?

• Poverty rate (number of people under poverty
  line)
• Gini coefficient in incomes The average
  difference in incomes between two randomly
  selected residents.

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Ways to Decompose Inequality

• Within-rural (within village and across
  villages), Within-Urban (within city and across
  cities), Rural-urban
• Factors and rewards to factors (how about
  randomness?)
• yhSwjhxjh (eh)

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Pre-Reform Inequality

• Within-village inequality Small
• Between-village inequality Could be large
• Within-city inequality Might be small
• Between-city inequality Might be small
• Rural-urban inequality Very big
• Gross inequality Relatively small
• Poverty rate High

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Post-reform Inequality

• Effect of transition on inequality
• Price effect
• Unemployment
• Entry of non-state enterprises (e.g. TVEs)
• Relaxed restrictions on migration
• Effect of development on inequality
• International trade
• Unbalanced growth of factor demand

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Post-reform Inequality

• Within-village inequality Increased
• Between-village inequality Unclear
• Within-city inequality Increased
• Between-city inequality Unclear
• Rural-urban inequality Unclear
• Gross inequality Significantly increased
• Poverty rate Negligible

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Data

• NBS urban household survey
• Income Lack subsidies
• Consumption Not easy to infer durables (e.g.
  housing)
• Rural household survey by the Research Center on
  the Rural Economy (RCRE)
• Difficulties Self-supplied consumption and
  implicit value of durables
• The China Health and Nutrition Study (CHNS)
  covering both urban and rural households
• Better coverage of urban subsidies and nonfarm
  self-employment
• No consumption or expenditure data

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Issues in Calculation

• Household income vs. per capita income
• Different treatment for NBS and CHNS data
• Value of home-produced grain
• Implicit rents associated with food and housing
• The very rich and the very poor may be excluded,
  leading to underestimate of income inequality
• Nominal vs. constant-yuan prices
• Time and spatial deflators

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Be Cautious

• Comparison of within-urban inequality between
  1980s and 1990s may be misleading due to the lack
  of information on subsidies.
• Inequality from RCRE data may not be comparable
  over time because it is generally not a random
  sample.
• Inequality from NBS and CHNS may not be
  comparable due to the different ways of
  calculating per capita income
• Inequality calculated may contain significant
  measurement errors since some components is not
  available from data and needed to be predicted.

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Decomposition Methodology

• Ln(yi)D?ui
• Using variations explained by D as an indicator
  of its importance
• Choices of D
• Province dummies
• City dummies
• Village dummies
• Urban dummies
• Their interactions

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Within-Rural and Within-Urban Inequality

• Inequality has increased within urban and within
  rural (Table 18.1 and 18.2, Figure 18.1 and 18.2)
• Spatial price deflation
• 90/10
• CHNS implies significantly higher inequality
  (Gini, 90/10, poverty rates)
• Within-rural inequality was significantly higher
  than within-urban inequality.
• Poverty rate is higher for rural.
• Problem with RCRE income growth rate

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Is Location Important?

• How much can location contribute to within-urban
  and within-rual inequality of China?
• Urban (NBS) About 28 percent for province and 40
  percent for city
• Urban (CHNS) About 4 percent for province and 20
  percent for city
• Rural (RCRE) About 20 percent for province and
  45 percent for villages
• Rural (CHNS) About 5 percent for province and 23
  percent for villages.
• Problem with the regression approach (measurement
  errors matter)
• General Trend Declining relative importance of
  location. This might imply that inequality within
  cities and within villages have increased.

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Rural-Urban Inequality (CHNS)

• Rural-urban inequality contributes to total
  inequality (Table 18.4)
• Urbanization process affects the calculation of
  urban-rural inequality (Table 18.5)
• Gross urban-rural inequality seems quite stable
  over time.
• Urban-rural inequality has risen in the interior
• Urban-rural inequality has fallen in the coast

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Interior versus Coast

• Inequality within the interior and within the
  coastal region of China has increased over time.
  The increase is more in the interior.
• Urban-rural inequality has increased in the
  interior but has declined in the coastal region.

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Within-City and Within-Village Inequality

• Within-city Wage inequality is becoming an
  increasingly important component
• Increasing rate of return to education
• Rising education attainment (this could
  eventually drive down inequality)
• Within-village Wage inequality is the most
  important component and its contribution has
  increased over time

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Inequality and Growth Evidence from Villages
(Benjamin et al., 2006)

• Data
• Household survey that tracks one hundred rural
  villages from 1986 to 1999.
• Surveys conducted by the Survey Department of the
  Research Center on the Rural Economy.
• About 7,000 households per year.

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Main Findings

• Evidence supports long-term effect of inequality
  on growth.
• This effect of inequality may happen by affecting
  local choices, possibly in the provision of
  public goods like education, or in setting taxes
  that fall heavily on the poor.
• No evidence for short-term effect of inequality
  on growth.

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Would China Achieve More Rapid Growth if the
Inequality Has been Kept Low?