Changes in the causes of earnings inequality in urban China from 1988 to 2002

This paper analyzes the causes of earnings inequality in urban China from 1988 to 2002. Earnings inequality in urban China continuously increased, even when adjusting for regional price differences. This paper reveals how the causes of earnings inequality changed between the periods 1988-1995 and 1995-2002 by reflecting labor-related institutional reform in China. Contrary to the situation from 1988 to 1995, between 1995 and 2002, employment status became the largest disequalizer, and the decline of inter-provincial inequality contributed to a reduction in entire earnings inequality. Individual ability, represented by education and occupation, received much greater rewards. Throughout the period from 1988 to 2002, a large part of the explained inequality increase was due to change in price (valuation of each individual's attributes) and not due to change in quantity (composition of individual attributes).

The contribution of supply and demand shifts to earnings inequality in urban China

This paper examines the degree to which supply and demand shift across skill groups contributed to the earnings inequality increase in urban China from 1988 to 2002. Product demand shift contributed to an equalizing of earnings distribution in urban China from 1988 to 1995 by increasing the relative product for the low educated. However, it contributed to enlarging inequality from 1995 to 2002 by increasing the relative demand for the highly educated. Relative demand was continuously higher for workers in the coastal region and contributed to a raising of interregional inequality. Supply shift contributed essentially nothing or contributed only slightly to a reduction in inequality. Remaining factors, the largest disequalizer, may contain skill-biased technological and institutional changes, and unobserved supply shift effects due to increasing numbers of migrant workers.