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Informal employment and its effect on the income distribution in urban China

Listed author(s):
  • Xue, Jinjun
  • Gao, Wenshu
  • Guo, Lin
Registered author(s):

    This paper discusses the issue of informal employment and its effect on the income distribution in China using datasets from the China Urban Labour Surveys of 2005 and 2010. Based on a new definition of informal employment, we estimated the proportion of informal employment relative to total non-agricultural employment in urban China and found it to be 49.7% in 2005 and 40.3% in 2010. Meanwhile, our study illustrated that informal employees' earnings were 67% that of formal employees, and this large earnings gap raised the Gini coefficient to 0.42 in 2005. The Blinder–Oaxaca decomposition result shows that the earnings gap explains more than half of the overall personal income inequality in urban China. These results indicate that informal employment has a significant effect on the income distribution in urban China. Consequently, regulating the labour market, eliminating job discriminations and legislating the informal employment should be considered as alternative means of reducing inequality in China.

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    File URL: http://www.sciencedirect.com/science/article/pii/S1043951X14000911
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    Article provided by Elsevier in its journal China Economic Review.

    Volume (Year): 31 (2014)
    Issue (Month): C ()
    Pages: 84-93

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    Handle: RePEc:eee:chieco:v:31:y:2014:i:c:p:84-93
    DOI: 10.1016/j.chieco.2014.07.012
    Contact details of provider: Web page: http://www.elsevier.com/locate/chieco

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    1. Cai, Fang & Wang, Meiyan, 2010. "Growth and structural changes in employment in transition China," Journal of Comparative Economics, Elsevier, vol. 38(1), pages 71-81, March.
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    7. Stefan Gravemeyer & Thomas Gries & Jinjun Xue, 2011. "Income Determination and Income Discrimination in Shenzhen," Urban Studies, Urban Studies Journal Limited, vol. 48(7), pages 1457-1475, May.
    8. John Bennett & Matthew D. Rablen, 2015. "Self-employment, wage employment, and informality in a developing economy," Oxford Economic Papers, Oxford University Press, vol. 67(2), pages 227-244.
    9. Oaxaca, Ronald, 1973. "Male-Female Wage Differentials in Urban Labor Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(3), pages 693-709, October.
    10. Angel-Urdinola, Diego F. & Tanabe, Kimie, 2012. "Micro-determinants of informal employment in the Middle East and North Africa region," Social Protection and Labor Policy and Technical Notes 66594, The World Bank.
    11. Quheng Deng & Shi Li, 2009. "What Lies behind Rising Earnings Inequality in Urban China? Regression-based Decompositions," CESifo Economic Studies, CESifo, vol. 55(3-4), pages 598-623.
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    15. Jonathan Haughton & Shahidur R. Khandker, 2009. "Handbook on Poverty and Inequality," World Bank Publications, The World Bank, number 11985.
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