Urban Income Gap In China And Its Relationship With Marketization

With the process of marketization since the reform and opening up, China’s economy rapidly developed and people’s living standards significantly improved, but also all-round expansion of residents’income gap. It has become the focus of attention of the society.What are the causes of widening income gap in China, especially the relationship between the process of marketization and income gap, academia is far from being reached consensus. Current research on this issue is limited and with the following deficiencies. First, most often only discussed the overall impact of the market-oriented process on the income gap, and less to distinguish the impact between different modes, different aspects of the process of marketization, also lack of theoretical and empirical analysis about that. Second, mostly current research focused on the individual characteristics of labors, and less analysis of income differences combined with macro-economic factors, so it’s difficult to explain the provincial characteristics about the residents’ income gap (for example, why the income gap within some provinces are larger than in other provinces). Third, the empirical analysis mostly based on the micro survey data in several year, and used the different approach and different data sources to measure the income gap, which leading to a difficult comparison between different analysis.This paper constructs a theoretical analysis model, to explore the impact of the different modes and aspects of the market process on the income gap. And also analyses the impact of labors’human capital (education level), unemployment, population structure, and other variables on the income gap. First, it analyses the different modes and aspects of the market process in theory, and analyze the current mode of different aspects of China’s marketization. In the early stage of market-oriented reforms, compared to "egalitarian" allocation mode in the planned economy, the residents’ income distribution jointly decided by the market and government behavior, the market allocation of resources will expand residents’income differences, what’s more, government’s intervention which against the rules of the market economy (eg. market segmentation, price "dual track") will further enhance the income gap, so this "bad" market-oriented mode will widen income gaps. With the further development and improvement of the market economy, and government role in allocating resources shrinked, factors that inhibit the development of the market also weakened, which as the "good" market-oriented mode help to narrow the income gap. Then, this article also investigated the impact of labors’endowments (human capital) and market risks (employment opportunities) and demographic changes (aging) factors on the distribution of income. At this stage in China, human capital improvement and increase in the level of unemployment will widen income gaps, and aging will inhibit the widening income gap. The derivation of the theoretical part provides the basis for empirical analysis,In the empirical analysis, first, according to the covariance method and data of the national and provincial Statistical Yearbook, this paper calculate the national and provincial Gini-coefficient of urban residents’ disposable income from1997to2010.We can find that residents’ income gap expanded significantly in this period, but expanding trend eased in the past two years. Also find that there is a big difference in the provincial income distribution (eg. average Gini-coefficient in Chongqing is0.2194, Hainan Province, compared with0.3063margin of nearly40%). Preliminary observations, the relationship between provincial income distribution and their economic level is not clear. This article uses the "NERI index of marketization" in Fan Gang, Wang Xiaolu, Zhu Hengpeng (2011) to measure the market-oriented process of all provinces. According to a simple correlation-analysis, it’s a positive correlation between urban Gini-coefficient and market-oriented process, this may support the view that the process of the market expanding income gap; However, the correlation is not the same as causality, because correlation may be due to the omission of other variables that affect the income distribution, or no distinction between the different effects of different aspects in market-oriented process on the income distribution, so there are pending further analysis.Then, this paper use the fixed effects model to analyze the impact of market process (with different aspects), residents’education, unemployment, population structure, economic growth, the development of the tertiary industry and other factors on residents’ income gap, and also, the sub-period, sub-regional analysis be examined in detail.(Many variables in this article are exogenous variables in the short term, such as population structure, the market-index which affected by the policy). The empirical results and theoretical analysis are consistent, conclusions are as follows.Empirical analysis found that the different aspects of the market process have a different impact on the income gap from1997to2009, but the total impact is to narrow rather than widen income gaps. For example,"the development of the product market" and "the development of non-state-owned economy" has narrowed the income gap, and its role has significantly increased in recent years, because both have entered the "good" market-oriented mode;"the relationship between government and the market","the development of productive factors markets", these two aspects are not statistically significant with residents’income gap, probably due to them are in the transition period of the market-oriented mode and slow development, their impacts to income gap are more complicated;"market intermediary organizations and the development of the legal system environment" is significantly expanding residents’income gap, which may be due to it is still in the "bad" market-oriented mode at this stage, the slow progress and the lower level of the rule of law, these services may be the "luxury" that just a small number of people (often high-income earners) can afford, it is more conducive to consolidate and enhance the income of high-income earners, which may expansion of the income gap.It also found that the enhancement of residents’education has become the main influencing factors that widened income gap in China, and its role is further strengthened after2007. The rise in unemployment is also the main factors, during the severe market shocks (such as the reform of state-owned enterprises after1997, the global financial crisis after2007), the impact of unemployment on the income gap further increase. These results suggest that income distribution is mainly affected by labors’differences in endowments (human capital) and market risks (employment level) in the market economy.In addition, population aging (rise in the dependency ratio of elderly population) will significantly narrow the income gap, and its role is further strengthened in recent years, there be more perfect urban old-age security and the elderly population retirement income increased in recent years, new retirement population reduced to reduce the proportion of low-income or zero-income earners, thus inhibiting the widening income gap.And the impact of economic growth on China’s income gap is quite complex: the regression coefficient of the logarithm of per capita GDP and its squared term may support "the Kuznets inverted-U hypothesis", but is still expanding the income gap with the economic growth in recent years. Overall, the "inverted-U nature" between economic growth and income gap may not be set up in China, so we can’t simply think that the income gap will automatically shrink with the economic growth. The development of the tertiary industry significantly narrowed the income gap, maybe the enhancement of the economic "quality" is more conducive to reduce the income gap than the growth of economic "quantity".Policy implication of this article is that, to narrow the income gap, on the one hand, the government in China should push forward the market-oriented reforms (especially in the factor markets, such as cancel the discriminatory employment restrictions) to solve the inequality of market opportunities in different economic entities, and make the transition to market-oriented mode of "good". On the other hand, the disparities in residents’education level has become the main factors that widened income gap, and educational opportunities is serious unfair in China, therefore, government should increase transfer payments (such as the education financial support) for children of farmer-worker and backward areas. Also government should implement a job helping policy (including the financing of vocational training) in order to reduce the unemployment rate, and improve the unemployment and old-age security insurance system to inhibit the expansion of the income gap.