Inequality: Trends, Causes, and Consequences

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Outline. Trend of inequality in ChinaIncome inequalityInequality in health and educationExplaining the trendGeneral patternsReasons for evolving inequality within the ruralReasons for evolving inequality within the urbanHow could inequality be reduced?Inequality and growth. Fifty Years of Re

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Inequality: Trends, Causes, and Consequences

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1. Inequality: Trends, Causes, and Consequences Lecturer: Zhigang Li

2. Outline Trend of inequality in China Income inequality Inequality in health and education Explaining the trend General patterns Reasons for evolving inequality within the rural Reasons for evolving inequality within the urban How could inequality be reduced? Inequality and growth

3. Fifty Years of Regional Inequality in China (Kanbur and Zhang, 2005)

4. Measurement Errors in Income Inequality (Chan and Wang, 2008) Observation: Since mid-1990s, the size of “floating migrants” has dramatically increased. However, a large part of them does not reflect on official population statistics. Consequence: Urban-rural and coast-interior inequality may be misleadingly large when official population data are used.

6. Spatial Inequality in Education and Health Care in China (Zhang and Kanbur, 2005)

11. Inequality of Childhood Malnutrition Presentation by Tam Wen Ian

12. Income Inequality and Health Presentation by Yee Yu

13. Explaining the Inequality Within-rural (within village and across villages), Within-Urban (within city and across cities), Rural-urban Variations in factor endowments and in rewards to factors (and risks) yh=Swjhxjh (+eh)

14. Pre-Reform Inequality Within Rural Within-village: Small Between-village: Could be large Within Urban Within-city: Might be small Between-city: Might be small Rural-urban: Very big Gross: Relatively small

15. Post-reform Inequality Effect of transition on inequality Price effect Unemployment Entry of non-state enterprises (e.g. TVEs) Relaxed restrictions on migration Effect of development on inequality International trade Unbalanced growth of factor demand

16. Post-reform Inequality Within Rural Within-village: Increased Between-village: Unclear Within Urban Within-city: Increased Between-city: Unclear Rural-urban: Unclear Gross: Significantly increased

17. Regional Inequality within China Presentation by Dayan Zhu

21. Data NBS urban household survey Income: Lack subsidies Consumption: Not easy to infer durables (e.g. housing) Rural household survey by the Research Center on the Rural Economy (RCRE) Difficulties: Self-supplied consumption and implicit value of durables The China Health and Nutrition Study (CHNS) covering both urban and rural households Better coverage of urban subsidies and nonfarm self-employment No consumption or expenditure data

22. Be Cautious Comparison of within-urban inequality between 1980s and 1990s may be misleading due to the lack of information on subsidies. Inequality from RCRE data may not be comparable over time because it is generally not a random sample. Inequality from NBS and CHNS may not be comparable due to the different ways of calculating per capita income Inequality calculated may contain significant measurement errors since some components is not available from data and needed to be predicted.

23. Decomposition Methodology Ln(yi)=D?+ui Using variations explained by D as an indicator of its importance Choices of D Province dummies City dummies Village dummies Urban dummies Their interactions

24. Is Location Important? How much can location contribute to within-urban and within-rual inequality of China? Urban (NBS): About 28 percent for province and 40 percent for city Urban (CHNS): About 4 percent for province and 20 percent for city Rural (RCRE): About 20 percent for province and 45 percent for villages Rural (CHNS): About 5 percent for province and 23 percent for villages. Problem with the regression approach (measurement errors matter) General Trend: Declining relative importance of location. This might imply that inequality within cities and within villages have increased.

25. Interior versus Coast Inequality within the interior and within the coastal region of China has increased over time. The increase is more in the interior. Urban-rural inequality has increased in the interior but has declined in the coastal region. Gross urban-rural inequality seems quite stable over time (Table 18.5).

26. Within-City and Within-Village Inequality Within-city: Wage inequality is becoming an increasingly important component Increasing rate of return to education Rising education attainment (this could eventually drive down inequality) Within-village: Wage inequality is the most important component and its contribution has increased over time

27. Explaining Intra-Village Inequality Presentation by Anxiang Hu

28. Income Inequality in Rural China (Wan and Zhou, 2005) Data Household-level survey data by the Research Centre for Rural Economy of the Ministry of Agriculture of China. Data since 1986 except for 1992 and 1994. Three provinces: Gangdong, Hubei, and Yunnan.

32. Findings Geography plays an important role Capital input has become an important factor in affecting income inequality in rural China The cropping pattern is more crucial than labor and human capital inputs The impact of education on inequality is small.

33. Income Distribution in Urban China (Khan, Griffin, and Riskin, 1999)

34. Disequalizing Policies By 1995, inequality in the distribution of wages accounted for 46% of overall inequality. A housing reform that resulted in an extremely uneven distribution of housing assets and housing services. In 1988, 14% of urban population lived in private housing. By 1995 the proportion increased to 42%. State-enterprise reform began generating large numbers of layoffs of state-sector workers. Industrialization during the period of globalization has been remarkably hostile to job creation. Output elasticity of employment is 0.037.

35. Male-Female Wage Inequality Presented by Lihong He

36. Could Democracy Reduce Inequality? Presentaion by Liuxin Ye

37. Impact of Removing Hukou (Whalley and Zhang, 2004) Method: Calibrate an economic model to base case data and then remove migration restrictions. Inequality changes can then be calculated.

38. Experiment 1: Remove Migration Barrier Findings Significant migration from rural to urban (200-600 million). Rural wage increase. Urban wage fall. No inequality in equilibrium. Total output increase slightly.

39. Experiment 2: Allow for Within-Region Inequality Inequality decrease after the migration barriers are abolished. Significant inequality remains.

40. Experiment 3: Allow for Housing Prices to Change People migrate from poor to rich regions. The migration magnitude is relatively small because housing prices increase in region with migrants. Inequality may increase in regions with migrants due to increased housing prices.

41. Inequality and Growth: Evidence from Villages (Benjamin et al., 2006) Data Household survey that tracks one hundred rural villages from 1986 to 1999. Surveys conducted by the Survey Department of the Research Center on the Rural Economy. About 7,000 households per year.

44. Main Findings Evidence supports long-term effect of inequality on growth. This effect of inequality may happen by affecting local choices, possibly in the provision of public goods like education, or in setting taxes that fall heavily on the poor. No evidence for short-term effect of inequality on growth.

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