Income Determination and Income Discrimination in Shenzhen

Shenzhen is not only one of the fastest-growing urban agglomerations in mainland China, Shenzhen also stands for a unique, most rapid and successful transformation into an urban market economy. How important are personal characteristics, social norms and policy-related discriminatory factors for income determination in such an extraordinary city? This paper estimates the income effect of non-productivity-related discriminatory factors (like personal characteristics, social norms and policies), compared with productivity-related returns on human capital. The design of the Shenzhen Household Survey 2005 enables the inclusion of a large set of discriminating factors in a Mincer Becker type of income model, together with a unique look at the migrant population in this urban centre. The results show that the human capital approach holds. Strong evidence is also found of a significant influence of social norms and policies, which is particularly relevant in a developing and transitional economy, even in such an exceptional city. The most important discriminating factor appears to be the hukou registration system. The on-going existence of these non-productivity-related discriminating factors can be regarded as indicative of an on-going process of transition towards a fully functioning market economy.