Change of Income Inequality in the Transition of Economic Institutions: The effects of schooling

With the implementation of the open-door policy and gradual transition of the economy since 1978, income inequality in China has increased and became the bottle-neck of further development. Reducing income inequality while maintaining continuous economic growth is crucial to China. This study explores the effects of schooling on income inequality in the transition of economic institution. Its analysis is based on the China Health Nutrition Survey (CHNS) which collected by Carolina Population Center at the University of North Carolina and the National Institute of Nutrition and Food Safety at the Chinese Center for Disease Control and Prevention. The research questions and results are as follows:;(1) How did the transition of ownership institutions influence the effects of schooling on income? Based on theories of property right, a hypothesis was formulated: "the rate of return to schooling would be higher in an economy consisted mainly of private ownership than that of non-private ownership". In order to test the hypothesis, multiple regression and hierarchical linear modeling were utilized. Results showed that, with the establishment of private ownership institution in China the rate of return to schooling increased, indicating that the effect of schooling on income distribution has also been strengthened.;(2) What are the effects of schooling on the income distribution in the transition of economic institutions? Based on the distributive justice theories of "luck egalitarians", this study established a model for the effects of schooling on the justice of income distribution.;First, the effects of schooling were separated into two parts. (a) The effects resulting from "Brute luck" which is considered unjust. "Brute luck" refers to those factors which are out of the individual's control and should not be the individual's responsibility. (b) The effects resulting from "Option luck" which is considered as just. "Option luck" refers to those factors which are under the control of the individual and belong to the individual's responsibility.;Second, path analysis modeling was utilized to estimate the two parts of schooling effects on income distribution justice from 1991 to 2006 in China. The conclusions are: (a) As the mediator of "Brute luck", effects on income through schooling increased, especially as the mediator in transmitting the effects of family income and family rural-urban registration, indicating that those factors considered as "unjust" on income distribution through schooling were strengthened. (b) As the mediator of "Option luck", effects on income through schooling also increased, indicating that the factors considered as "just" on income distribution through schooling were also strengthened. (c) However, the ratio of "Brute luck" mediator effects to the "option luck" mediator effects of schooling on income increased as the economy gradually transits into the one with higher level of private ownership, indicating that the capacity of schooling in strengthening income distributive justice was reduced.;It can be concluded that the effects of schooling on income distribution were influenced by two aspects: one was the strength of schooling in affecting the income of the individuals (the rate of return to education), and the other was the relative strength of "Brute luck" and "Option luck" on schooling. For China, the reform of the economy towards private ownership institution has caused the rate of return to education to rise, and simultaneously, schooling was affected more strongly by "Brute luck", which reduced the effects of schooling on the "just" distribution of income. Therefore, in order to make schooling as the route to enhancing the distributive justice of income, we should, first of all, actualize the distributive justice of schooling itself, and then, establish schooling as the way to improving economic life in the future through efforts and choices by the individuals themselves.