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Competitive pressures on China: Income inequality and migration

  • ten Raa, Thijs
  • Pan, Haoran

AbstractHow would perfect competition affect the distribution of income in China? To answer this question, we integrate the two main streams of income distribution theory, namely the functional and the personal income approaches. First, using a general equilibrium model of China comprising 30 sectors and 27 provinces, marginal productivities are used as competitive commodity prices and factor rewards. Second, the rewards are imputed to households using their compositions in terms of persons and factor endowment entitlements. The ensuing distribution is contrasted with the status quo. Less skilled labor would stand to lose and, therefore, inequality would mount. Skilled workers, managers and technicians would move from Western and Central China to Eastern China. These flows would be more than offset by a flow of unskilled labor from Eastern China to Central China. Our finding that Eastern China has too many unskilled workers, relative to the competitive benchmark, suggests that the Harris-Todaro mechanism operates in China. Competition would change the predominant nature of inequality from the rural-urban divide to differences between the social classes. Moreover, the existing negative relationship between development and inequality would evaporate.

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Article provided by Elsevier in its journal Regional Science and Urban Economics.

Volume (Year): 35 (2005)
Issue (Month): 6 (November)
Pages: 671-699

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Handle: RePEc:eee:regeco:v:35:y:2005:i:6:p:671-699
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  1. Shorrocks, A F, 1980. "The Class of Additively Decomposable Inequality Measures," Econometrica, Econometric Society, vol. 48(3), pages 613-25, April.
  2. Thijs Ten Raa & Pierre Mohnen, 2001. "The Location of Comparative Advantages on the Basis of Fundamentals Only," Economic Systems Research, Taylor & Francis Journals, vol. 13(1), pages 93-108.
  3. Thijs Raa & Pierre Mohnen, 2002. "Neoclassical Growth Accounting and Frontier Analysis: A Synthesis," Journal of Productivity Analysis, Springer, vol. 18(2), pages 111-128, September.
  4. Harris, John R & Todaro, Michael P, 1970. "Migration, Unemployment & Development: A Two-Sector Analysis," American Economic Review, American Economic Association, vol. 60(1), pages 126-42, March.
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