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Rising Earnings Inequality in Urban China during 1988-2007. Li Shi School of Economics and Business Administration, BNU Song Jin School of Economics and Business Administration, BNU and Deng Quheng Institute of Economics, CASS. Background. Economic reform in China since early 1990s. - PowerPoint PPT Presentation
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Rising Earnings Inequality in Urban China during 1988-2007
Li ShiSchool of Economics and Business Administration, BNU
Song JinSchool of Economics and Business Administration, BNU
andDeng Quheng
Institute of Economics, CASS
Background Economic reform in China since early 1990s.
The privatization of state-owned enterprises;
The development of private firms and self-employment;
The reform of wage systems in public sector.
Wage reforms ongoing within SOES
To enhance incentives, distribute wage according to performance of workers and enlarge wage
differentials among workers.
BackgroundFigure 1. Number of workers in state-owned and urban collective enterprises
as a percentage of all workers in urban China.
0
10
20
30
40
50
60
70
801988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
%
state-owned
col l ecti ve
Source: National Bureau of Statistics (2008).
Background
Meanwhile, increasing income
inequality from 1980s.
For Gini coefficient,
China as a whole: 0.28 (1983)—0.48 (2007)
Urban China: 0.17 (1983)—0.36 (2007)
Research Questions
What are the main driving forces for
increasing income inequality?
Different characteristics distribution?
Different earnings determination mechanism?
To what extent do they contribute?
Structure
Brief literature review
Methodology introduction
Data used and descriptive statistics
Regression analysis
Decomposition results
Summary
Brief Literature Review
Factors studies mentioned that are important in earning determination.
Education attainment, work experience, ownership,
industry, region, gender, minority
Brief Literature Review-1
Education attainment
1. Rising returns to education in urban China since
the mid 1980s (Li and Lee, 1993; Lai, 1999; Li and
Ding, 2003; Park et al, 2007).
3.8%(1988)-5.7%(1995)-8.1(1999)
2. Returns to education also increase with education
level.
3. Increasingly strong explanatory power for
earnings differentials.
Brief Literature Review-2
Work experience
Decreasing role in earnings determination in urban China at beginning of economic reform.
In the planned economy, seniority was more important.(Knight and Song, 1993)
Between 1981-1987, wage of SOE workers increased with work experience.
(Meng and Kidd, 1997)
From the mid 1990s, the relationship weakened(Knight and Song, 2008)
Brief Literature Review-3
Ownership, Industry and Region
Earnings: top: foreign enterprises
bottom: collective enterprises;(Zhao, 2002; Chen et al, 2005)
For unskilled workers: SOEs > foreign enterprises;
For skilled workers: SOEs < foreign enterprises.(Zhao, 2002)
Segmentation based on ownership and Hukou(Chen, et al, 2005; Demurger, et al, 2007, Demurger, et al,
2009 )
Brief Literature Review-4
Gender
Gender wage/ earnings gap was extremely small in early 1980s and increased in favor of male workers in urban China with economic reform.
(Gustafsson, Li, 2001; Li and Song, 2010)
Increasing number of the unemployed/ xiagang worker caused the decline of female participation rate.
(Meng, 2004)
Methodology Introduction--Decomposition of earning difference
Oaxaca/ Blinder (1973) decomposition Yt+j – Yt = t+j ( Xt+j – Xt ) + Xt (t+j – t)
Yt+j – Yt = t ( Xt+1 – Xt ) + Xt+1 (t+j – t)
When decompose earning growth between time
points,
First term – Changes in socioeconomic and job
characteristics of employees/ employers;
Second term – Changes in rewards to socioeconomic and
job characteristics of employees/ employers.
Methodology Introduction--Decomposition of earning inequality
Fields (1998) decomposition
The contribution of the jth income source to inequality indices of income.
2
cov( , ln ) * ( )* [ , ln ](ln )
(ln ) (ln )j j j j j
j
a z y a z cor z ys y
y y
Data Used
Urban survey of CHIPS Data set
CHIP– China Household Income Project
Collected by the Institute of Economics, Chinese Academy of Social Sciences, and later on by BNU.
Keeping people who were 16 to 60 aged workers with positive income, in our paper,
for 1988, 16991 individuals were selected;
for 2007, 9053 were selected.
Data Used
To combine these two datasets together,
1. Select the same provinces;
2. Adjust earnings of 2007 at 1988 prices;
3. Adjust provincial PPP;
4. Weight sample according to actual provincial
employment and employment in different
ownership.
Sample Description
0
10
20
30
40
50
60
70
1988 2007
Femal eMal e
Employment structure by Gender
Sample Description
Employment structure by Age Group
0
5
10
15
20
25
16-20 21-25 26-30 31-35 36-40 41-45 46-50 51-55 56-60
19882007
Sample Description
Employment structure by Education Attainment
05
1015202530354045
pri m
ary
and
l ess
midd
l e s
choo
l
high
sch
ool
prof
essi
onal
sch
ool
2yea
r co
l leg
e
4yea
r co
l leg
e
19882007
Sample Description
Employment structure by Ownership
0
10
20
30
40
50
60
70
col l ecti vesector
state-ownedsector
pri vate orsel f -empl oyed
otherownershi p
19882007
Earnings distribution Description
50
100
150
200
250
Me
an in
com
e
20 30 40 50 60Age
meanincome meanincome_mmeanincome_f
Mean income-Age Distribution_1988
02
00
400
600
800
100
0M
ean
inco
me
20 30 40 50 60Age
meanincome meanincome_mmeanincome_f
Mean income-Age Distribution_2007
Descriptive Statistics Annual growth rate: 8% on average
But growth rates vary with groups with different characteristics
Male > Female; 26-30 group >> 16-20 group
Han majority > minority; SOE > private sector
Well educated > less educated
Financial sector > trade and commerce
Coastal provinces > western provinces
Earnings peak earlier
Gender group
Female 3.8 Mean Income Ratio (07/88)
Male 4.35
Educational
attainment
primary and less 2.77
Ownership
collective sector 3.68
Minority group
Han 4.21 middle school 3.23 state-owned sector 4.52
Minority 3.61 high school 4.23 private or self-employed 1.05
Age group
16-20 2.54 professional school 3.45 other ownership 4.14
21-25 3.28 2year college 4.3
Industry
manafacturing 4.16
26-30 4.55 4year college 4.9 agriculture 5.15
31-35 4.49
Province
Beijing 4.29 mining 4.05
36-40 4.45 Shanxi 4.32 construction 4.31
41-45 4.08 Liaoning 3.44 transportation and communication 4.06
46-50 3.67 Jiangsu 4.11 commerce and trade 3.38
51-55 3.5 Anhui 3.59 public utilities 4.25
56-60 3.34 Henan 3.88 finance and insurance 5.37
Occupation
manual worker 3.39 Hubei 3.69 education and culture
4.51
office worker 4.26 Guangdong 5.12 health and social welfare 3.92
officer or manager 4.85 Yunnan 2.97 scientific research and
technology 4.82
professional or technician 4.5 Gansu 2.61 government and social
organizations 4.79
Regression Analysis
Dependent variable used:
Logarithm of yearly earnings of individuals
Independent variables used:
Gender, ethnic minority status, age group,
education, occupation, ownership, province
Regression Analysis-1
Coefficients of age groups from earnings function, 1988 and 2007
0
0. 2
0. 4
0. 6
0. 8
1
1. 2
21- 25 26- 30 31- 35 36- 40 41- 45 46- 50 51- 55 56- 60
19882007
Regression Analysis-2
Returns to education in urban China, 1988 and 2007
00. 10. 20. 30. 40. 50. 60. 70. 80. 9
19882007
Regression Analysis-3
Return to occupation in urban China, 1988-2007
0
0. 10. 2
0. 3
0. 40. 5
0. 6
office
work
er
office
r or
ma
nage
r
prof
essi
onal
orte
chni
cian
o
ther
s
19882007
Regression Analysis-4
Returns to province in urban China, 1988 and 2007
- 0. 3
- 0. 2
- 0. 1
0
0. 1
0. 2
0. 3
0. 4
0. 5
0. 6
0. 7
Bei j
i ng
Shan
xi
Liao
ning
J ian
gsu
Anhu
iHe
nan
Hube
i
Guan
gdon
g
Yunn
an
19882007
Oaxaca Decomposition- GeneralDecomposition of earnings growth (%)
Variable Attrib Endow Coeff
Gender group 8.02 0.93 7.10
Age group 38.89 5.40 33.56
Minority -0.31 0.00 -0.31
Education Group 30.71 12.35 18.29
Ownership 5.86 -2.24 8.26
Occupation 7.56 3.94 3.70
Industry 1.39 -0.08 1.39
Province 29.17 1.16 27.78
Constant -21.30 0.00 -21.30
Total 100.00 21.45 78.47
Oaxaca Decomposition- Quantile Endowment Coefficient Total
- due to endowments (E):
E%- due to
coefficients (C):
C% Raw differential (R) {E+C}:
10th 0.16 17.85 0.73 82.15 0.89
20th 0.14 13.67 0.86 86.33 1.00
30th 0.13 12.07 0.95 87.93 1.08
40th 0.14 11.78 1.03 88.22 1.17
50th 0.15 12.03 1.10 87.97 1.25
60th 0.17 13.03 1.17 86.97 1.34
70th 0.22 15.25 1.22 84.75 1.44
80th 0.29 18.86 1.26 81.14 1.55
90th 0.44 26.09 1.26 73.91 1.71
Oaxaca Decomposition- Quantile
123
0.5
11
.52
Log
rin
com
e ef
fect
s
0 .2 .4 .6 .8 1Quantile
Total differential Effects of characteristicsEffects of coefficients
Decomposition of differences in distribution
Lorenz Curve of Earnings in Urban China
0.2
.4.6
.81
0 .2 .4 .6 .8 1
1988 2007Diagonal
Lorenz Curve_ Income
Decompositions of Earnings Inequality
Earnings component
s
Wage income
Business income
Other income
Total earnings
1988 2007 1988 2007 1988 2007 1988 2007
Share (%) 91.54 89.29 0.05 8.69 8.41 2.02 100 100
Concentration ratio
0.21 0.36 3.49 0.52 0.29 0.49 0.22 0.37
Contribution to total
inequality (%)
87.9 85.33 0.83 12.23 11.28 2.44 100 100
Gini decomposition based on regressionExplanatory variables 1988 2007
gender 0.9 2.6
Age 7.3 8.6
minority 0 0
education 1.9 10.7
Ownership 4.2 0.5
Occupation 2.8 4.5
Industry -1 0.5
province 1.9 3.5
residual 82.2 69.2
Total 100 100
Conclusions
The earnings inequality has been significantly increasing in
urban China since the end of 1980s. In terms of Gini, the
increase is 70%.
For the driving forces behind,
The increased return to human capital
------Results of marketization process
The rising gap between gender and among regions/ownerships
------Market segmentation
Thank you !