Inequality: Trends, Causes, and Consequences

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Inequality Trends, Causes, and Consequences

• Lecturer Zhigang Li

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Fifty Years of Regional Inequality in China
(Kanbur and Zhang, 2005)
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Income Inequality in Rural China(Wan and Zhou,
2005)

• Data
• Household-level survey data by the Research
  Centre for Rural Economy of the Ministry of
  Agriculture of China.
• Data since 1986 except for 1992 and 1994.
• Three provinces Gangdong, Hubei, and Yunnan.

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Findings

• Geography plays an important role
• Capital input has become an important factor in
  affecting income inequality in rural China
• The cropping pattern is more crucial than labor
  and human capital inputs
• The impact of education on inequality is small.

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Income Distribution in Urban China(Khan,
Griffin, and Riskin, 1999)
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Disequalizing Policies

• By 1995, inequality in the distribution of wages
  accounted for 46 of overall inequality.
• A housing reform that resulted in an extremely
  uneven distribution of housing assets and housing
  services.
• In 1988, 14 of urban population lived in private
  housing. By 1995 the proportion increased to 42.
• State-enterprise reform began generating large
  numbers of layoffs of state-sector workers.
• Industrialization during the period of
  globalization has been remarkably hostile to job
  creation. Output elasticity of employment is
  0.037.

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Spatial Inequality in Education and Health Care
in China (Zhang and Kanbur, 2005)
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Urbanization and Health Care in Rural China (Liu
et al., 2003)

• Findings
• Urbanization is strongly associated with higher
  rates of insurance coverage in rural populations.
• Urbanization seems to benefit all income groups
  and occupations equally in terms of health
  insurance status.
• No association between the level of urbanization
  and the probability of using care after
  controlling for health insurance.

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Impact of Removing Hukou(Whalley and Zhang, 2004)

• Method Calibrate an economic model to base case
  data and then remove migration restrictions.
  Inequality changes can then be calculated.

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Experiment 1 Remove Migration Barrier

• Findings
• Significant migration from rural to urban
  (200-600 million).
• Rural wage increase. Urban wage fall. No
  inequality in equilibrium.
• Total output increase slightly.

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Experiment 2 Allow for Within-Region Inequality

• Inequality decrease after the migration barriers
  are abolished.
• Significant inequality remains.

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Experiment 3 Allow for Housing Prices to Change

• People migrate from poor to rich regions.
• The migration magnitude is relatively small
  because housing prices increase in region with
  migrants.
• Inequality may increase in regions with migrants
  due to increased housing prices.

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Occupational Segregation between Natives and
Immigrants in Hong Kong (Liu et al., 2004)

• Hong Kong is a society of immigrants
• In 1996, 60 of HK workforce were native born.
  About 33 are immigrants from mainland China.
• Between 1898 and 1950, Chinese citizens could
  freely enter and leave HK.
• Between 1950 and 1979, strict rules were enforced
  forbidding people migrating to HK, but people who
  successfully reached HK will be allowed to stay.
• After 1979, illegal migrants to HK were sent back.

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Theory of Occupational Segregation

• Poor job matching for new immigrants
• Schooling of immigrants is not the same as
  schooling of natives.
• Discrimination against immigrants.

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Empirical Findings I

• If the immigrants were to face the same
  occupation structure as the natives
• The proportions of immigrants who would be
  managers/administrators, professionals and
  associate professionals (about 5), clerks and
  plant operators would increase
• Immigrants who would be service, craft or
  elementary workers would fall.

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Empirical Findings II

• As the duration of residence rises from less than
  5 years to more than 20 years, occupational
  segregation declines from 22 to 5.
• Occupational segregation is found to be
  non-existent for immigrants who came to HK before
  10 years old. For immigrants who came to HK when
  they were over 20 years old, occupational
  segregation is around 15 of wage differentials.

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Restructuring and Inequality in Urban China
1988-99 (Meng, 2004)

• Data
• Urban household surveys by the Chinese Academy of
  Social Sciences 1988, 1995 and 1999.
• Sample sizes 3700, 2746, and 3215 households in
  five provinces (Beijing, Jiangsu, Liaoning,
  Henan, and Gansu).

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Findings

• A moderate reform era (1988-95)
• Main cause of inequality is regional income
  dispersion.
• Restructuring (mainly sector effect) and Party
  effect are also important causes.
• A radical reform era (1995-99)
• Main cause of inequality is restructuring (mainly
  the large-scale unemployment) (Fig.3).
• Some unidentified causes of inequality also
  become more important.
• Human capital starts to play a more important
  role.

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Widening Skill Premium Main Ideas

• Demand for skilled labor increased over time
• Demand from the supply side Increased usage of
  high-tech capital (e.g. digital devises)
• Demand from the demand side Consumption
  structure shifts towards the high-quality goods
  (e.g. economic growth, or trade)

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Trade and Inequality

• The production of less skill-intensive goods
  migrates from rich to poor regions (e.g.
  outsourcing or industry relocation). This raises
  wage inequality in both the poor and rich
  regions. (Zhu and Trefler, 2005)
• Trade brings new technology to poor region,
  leading to larger demand for skilled labor and
  raising their wage

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Outward Processing Trade and Wage Inequality in
Hong Kong (Ho et al. 2005)

• Outward Processing Trade between HK and mainland
  China
• The trade with mainland China amounts to 42 of
  Hong Kongs total trade.
• In 2002, 46 of HKs exports to the mainland were
  for outward processing, while 76 of Hong Kongs
  imports from the mainland were related to outward
  processing.

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Findings

• Outward processing trade was positively
  associated with the wage premium of university
  graduates over primary and secondary school
  graduates.
• Pay for well-educated people increase
• Pay for less well-educated people decrease

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WTO and Poverty in Rural China (Huang et al.,
2003)

• Why poor households may benefit less from trade
  policy changes than richer households do?
• A computer-simulation study using the China
  Agricultural Policy Simulation modeling
  framework.
• Disaggregate data into thirty-three groups, based
  on eleven income categories in three regions of
  China.

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Findings

• If China implements its promises for the WTO
  agreement, the impact on peasants are as follows
• Overall price levels falls (some produce prices
  rise)
• Eastern farmers benefit much more from accessing
  WTO than western farmers
• Farmers respond by moving to agricultural
  products experiencing rising prices
• Overall agricultural outputs increase

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Poverty, inequality, and growth of urban China
(Meng et al., 2005)

• Data
• The Household Income and Expenditure Survey by
  the National Bureau of Statistics.
• Cover 29 provinces for 1986-2000.
• There may be some problem with the sampling
  procedures, especially in recent years.
• Only urban households are surveyed.

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Summary of Findings

• Urban poverty increased in the early 1990s,
  reaching a peak in 1993, and then stabilized till
  declining after 1997.
• Income growth are positively associated with
  poverty reduction.
• Growing income inequality contributed to an
  increase in poverty.

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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.