Growth Pattern, Employment, and Income Inequality: What the Experience of Republic of Korea and Taipei, China Reveals to the People’s Republic of China

The People’s Republic of China (PRC) achieved rapid economic growth during the last 30 years, but its income distribution has worsened. In contrast, Republic of Korea and Taipei, China experienced high growth for several decades after the 1950s, while managing to keep income inequality low. This paper looks at development experiences of Republic of Korea and Taipei,China in the 1950s–1990s, and concludes that the key to achieving high growth with low inequality in the two economies was the adoption of a growth strategy that promoted development of labor-intensive industries and small- and medium-size enterprises. The creation of large amounts of employment opportunities to absorb rural surplus labor and reduce urban unemployment played a key role in keeping income inequality low. The paper argues that to reduce income inequality in the PRC, the government should shift to a more labor-intensive development strategy, encourage the development of small and medium enterprises, and unify the labor market.