Research On The Impact On Income Gap Due To The Inequality Of Opportunity In China

ABSTRACT:China is the country which has been experiencing the highest economy growth rate (GDP) in the past twenty years around the world. Meanwhile, the income gap in China has been widening as one of the largest country since 1978 when China explored the Reform and Opening up. The scholars in home and abroad have been arguing the Chinese income gap from the view of the different perspectives, such as market mechanism, household registration system, income distribution system, property rights and social policy implemented in the past thirty years. They have proposed some practice policy recommendations to narrow the Chinese income gap. However, there is no consensus among the scholar and policy makers on the reasons, status, and countermeasures on this issue so far. This paper attempts to understand the Chinese current income gap in a normative view. The income gap should include two parts at least. One is called the reasonable income gap which is caused by the different efforts. The other is called the unreasonable income gap which, however, is caused by many circumstances the individuals can't control themselves. The later income gap is the opportunity inequality which is our main research objects in this paper.This paper unfolds as follow:Chapter one introduces the background, significance, questions, idea, concept, theory, methodology, structure and the innovation of the paper. Chapter one proposes that inequality of opportunity is good view to see the current income gap in china based on analyzing the literatures on the income gap at home and on abroad. The chapter two introduces the literatures on the income gap of China, inequality of opportunity and sibling correlations. The related theory and metrical theory we utilize in this paper are also showed in the chapter two. The chapter three reviews the track of the income distribution from the equality to inequality in the past thirty years. It proposes that the inequality of opportunity is one o important fact to cause the Chinese income gap, except the market mechanism, institutions. Chapter four uses the sibling correlation to analyze the inequality of opportunity from income gap in the nine Chinese provinces from 1989 to 2006. Chapter five utilizes the phased robust regression partial model to estimate the influence on income gap from the inequality of opportunity based on the data from nine Chinese provinces. Chapter six discusses the relationship among the income inequality, opportunity inequality and sustainable development from the prospective of the market failure theory, human resource capital, intergenerational mobility and the sustainable development. Chapter seven proposes that the government should reduce the contemporary inequality of opportunity to reduce the contemporary and future income gap, which is new compared to the other recommendations. Chapter eight highlights the conclusions, innovations, the coming research area and the object limitations of this thesis.This paper uses the CHNS (Chinese Health Nutrition Survey) data from 1989 to 2006, which is unbalanced panel data from the nine Chinese provinces. The related theory in this paper is Classical Economics, New Classical Economics, Welfare Economics, New institutional Economics, Market failure, Human resource capital, intergenerational mobility and sustainable development. The model we use in this paper is sibling correlation and the phased robust regression partial model. We obtain some meaningful conclusions via estimating the two models introduced above. The conclusions follow as:The estimated results show the high sibling (brother) correlation coefficient in the nine Chinese provinces, and the correlation coefficient is 0.61 and 0.56, respectively. The correlation coefficient is much higher compared to the northern European counties and American disregarding of the data and methodology. The factors shared by the siblings can explain 56% of the whole income gap at least. The shared factors are more important than the individual factors both in costal and interior area. Moreover, the influence of the factors shared by the siblings is more significant in costal area than they do in interior rural area.The proportions of inequality of opportunity among the income gap in 1989,1991, 1993,1997,2000,2004, and 2006 are 46%,49%,48%,57%,65% and 63%, respectively. The Gini coefficients excluded the inequality of opportunity are 0.15,0.14, 0.18,0.15,0.17,0.17,0.16 in the seven waves, respectively. On average, the inequality of opportunity can explain the 54% of the whole income inequality in the last twenty years in China. Among all the observed circumstances, the parerent income and occupation can explain two thirds of the whole inequality of opportunity. Contrast to other developing counties, the parents' education in China plays the fewer roles in shaping the offspring's income. On average, among all the significant variables, the offspring's income increase 0.45% with the household disposable income increase 1%. The offspring's income is higher 12% in the costal than the income of the offspring in the interior. The offspring's income either in the developed province or urban area is higher 14% than the income of the offspring in the lagged province and rural area. The scholars are always arguing the relationship between the income gap and the economy growth in the aspects of both the model and empirical research. Some believe the relationship is positive. Some argue that the relationship is negative. And some think the relationship is inexplicit. If the income gap is divided into two parts:one is caused by the inequality of opportunity and the other part is caused by the individual's effort, the relationship between the income gap and the economy growth is explicit. Income gap caused by the inequality of opportunity obstacles the sustainable development. The income gap caused by the efforts can improve the well being, increase investment, and stimulate the economy development. The relationship between the income gap and the inequality of opportunity is not always positive. The relationship between the income gap and the economy growth depends on those two parts income gap eventually.This paper proposes that we should change the current thinking way to reduce the income gap based on the conclusions above. Firstly, the more important is to reduce the future income gap, compared to the contemporary income gap. Secondly, narrow the income gap between the different ownership enterprises and eliminate the employment discrimination to make sure the opportunity of the employment equaller. Meanwhile, increasing the income of low income family and transferring the income of high income family is good way to reduce the contemporary and future income gap. Finally, make sure the pre-school education equal from the starting point in the life to prevent from the future unreasonable income gap.