Income Inequality in Urban China, 1978-2005

The aims of this paper are twofold: (1) identifying the “winners” and “losers” in China’s economic transition via regression analyses on income using repeated cross-sectional data at individual levels over the entire period of economic reform, and (2) linking the “winners” and “losers” categories to the income inequality at the aggregate level by decomposing the trend in overall income inequality with respect to some key characteristics of these categories. Based on individual level analyses of 11 waves of survey data collected in urban China from 1978 to 2005, we found that (1) returns to schooling have been increasing over time; (2) returns to party membership did increase, but when distinguishing between ordinary party members and cadre members, the increase in income returns to ordinary members seemed to be non-substantive and there is no temporal trend in returns to cadre members; (3) workers in the private sector and the self-employed (getihu) are –looking at the entire period 1978 – 2005- among the “losers” of the economic transition; (4) the unemployed, although profiting from the transition during the first half of the 80s, also turned out to be among the “losers”; and (5) the employers in the private sector were among the “winners”. Results from the decomposition analyses showed similar effects on China’s overall income inequality A link between the “winners” and “losers” on the micro-level and changes in the explained income inequality at the macro-level could be established.