Inequality of opportunity and income inequality in nine Chinese provinces, 1989-2006

While there is a large and growing body of research describing and analyzing changes in the Chinese income distribution, researchers have paid considerable less attention to inequality of opportunity. The aim of this paper is to contribute to filling this gap in the literature. The two main questions addressed empirically for the first time in a Chinese context are: to what extent are individuals' incomes and individual income differences due to factors beyond the individual's control (in Roemer's terminology "circumstances") and to what extent are they due to outcomes of the individual's own choices ("effort"). What is the relationship between income inequality and inequality of opportunity? For this purpose we use data from the China Health and Nutrition Survey collected from nine provinces during the period 1989 to 2006. The CHNS has detailed information about incomes and other factors enabling us to construct a host of circumstance and effort variables for the offspring. We find that China has a substantial degree of inequality of opportunity. Parental income and parents' type of employer explain about two thirds of the total inequality of opportunity. Notably, parental education plays only a minor role implying that parental connections remain important. The results show that the increase in income inequality during the period under study largely mirrors the increase in inequality of opportunity. Thus, increased income inequality does not reflect changes in effort variables, or expressed differently, increased income inequality has not been accompanied by a decrease in inequality of opportunity.