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CESifo Economic Studies Advance Access originally published online on July 17, 2009
CESifo Economic Studies 2009 55(3-4):598-623; doi:10.1093/cesifo/ifp015
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© The Author 2009. Published by Oxford University Press on behalf of Ifo Institute for Economic Research, Munich. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org

What Lies behind Rising Earnings Inequality in Urban China? Regression-based Decompositions

Quheng Deng* and Shi Li{dagger}

* Chinese Academy of Social Sciences. e-mail: qhdeng{at}vip.sina.com
{dagger} Beijing Normal University. e-mail: lishi{at}bnu.edu.cn We are grateful for financial support for the preparation of this paper from the Fukino Project, Hitotsubashi University and useful comments of the anonymous referee.

Coupled with advances in enterprise reform and changes in the wage structure, earnings inequality in urban China has been increasing, and this has contributed significantly to rising income inequality. Using urban household survey data from the 1988, 1995 and 2002 waves of the China Household Income Project, in this article, we decompose earnings inequality in urban China by using the recently developed regression-based decomposition methods. The decomposition results indicate that the effects of gender and membership of the Communist Party of China on earnings inequality have changed little. While work experience had a reduced effect on earnings inequality, the effects of education and occupation have increased. The contributions of ownership status and industry to earnings inequality have increased. Regional effects have been the largest recent contributor to earnings inequality. (JEL codes: D31, J31, O53)

Key Words: earnings inequality • regression-based decompositions • urban China


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