Research In Methodology Of Income Gap Easurementand The Measurement Of Chinese Income Disparity

Since the reform and opening from 1978 China has undergone enormous changes. There is no doubt about its success in economic development. The quality of living is unprecedentedly improving and the social infrastructure is being well constructed. However, every change in the history paid its price. As the progressive change in economics and society, a series of problems emerge, one of which is the growing income disparity that is receiving increasing attentionIncome inequality arises simply because the growing wealth is not being equally distributed. This problem raises awareness among scholars at home and abroad. Income gap in China has its particularities, the reality of hugeness regional and large population decide that is more complex to measure the inequality than west Europe or north America who just use one method to calculate or one target to scale. Unlike in west Europe or north America where a single scale is used to measure inequality, the measurement of inequality is much more complicated due to its giant population and wide areas. Specifically, the urban and rural income gap, regional gap and industries gap all contribute to the income gap in China. The only way to calculate the China's income inequality is to measure the three parts separately.Based on the methodology in the literature in income gap, and the current research is dedicated to contribute to the literature by empirically calculating the urban-rural income gap, regional income gap and the income gap among the industries. The urban-rural income ratio is employed to measure urban-rural income disparity, range coefficient, Gini coefficient, and Theil index is used to measure regional and trade income disparity. The results in methods don't converge, so we have to conduct a deeper analysis to achieve a better measure of China's income gap.By the different measurement methods as well as the empirical analysis of Chinese income gap, we reach two conclusions: First, China's income gap that is mainly embedded in very complex composition makes it impossible to use a single method to measure the disparity. Second, our empirical analysis reveals that China's income gap has gradually widened since the reform in 1978. Urban-rural income ratio reaches a very severe degree, up to 3.33:1; per capital disposable income of urban people is more severe than per capita rural net income, which indicates the income gap in rural areas is graver. Because of changes in industrious sort standards in 2003, Chinese trade income gap have been divided into two parts. Even though there is some loss of comparability between before and after the year, the trends in subsequent years are similar. The overall industrious income gap trend is constantly widening as the graph of the trade income gap in decade shows.This paper has five chapters. Chapter one introduces the research background and reviews the theories that offers a framework of this paper. Chapter two introduces various methods of calculating income gap including: range, range coefficient, Lorenz curve, Gini coefficient, Theil index, standard deviation, coefficient of variation and Atkinson index. This part provides a basic approach for the empirical analysis of Chinese income gap in chapter IV. Chapter three critically compares these measurement methods and indexes as well as justifies the use of the very method in the next chapter. Chapter four is the main section of this article, where urban-rural income ratio, range coefficient, Gini coefficient, Theil index and coefficient of variation are used to measure China's income gap between urban and rural areas, among regions and different industries. This part explains the divergence of results from different methods and also predicts the trends of Chinese income gap. Chapter five is conclusion part.