Opportunity Inequality in Income Gap of China-A Decomposition Based on Regression Equation

Abstract

Using China General Social Survey (CGSS) data and a decomposition method based on regression equation, this paper decomposes the reasons for income gap in urban areas, rural areas and the whole country in general into three factors opportunity inequality stemming from environmental factors, income inequality stemming from effort factors, and income inequality from luck and unknown factors. The results are as follows. (1) From 2010 to 2015, opportunity inequality on a national, urban and rural scale went up first and down later, with a rising contribution from Hukou (household registration) at birth. (2) Estimate shows that China s opportunity inequality was 24.39% in 2010, 28.04% in 2012, peaks at 35.72% in 2013 and falls to 30.56% in 2015, but the percentages would be 8% overestimated if Party membership, migration, and the interactions between environmental and effort factors are excluded. (3) In the 2010 2015 period, the average opportunity inequality in rural areas was 33.31%, about eight percentage points higher than in urban areas. While age and gender can explain the high rate in rural areas, difference in the place of residence is the main reason for inequality in urban areas. Therefore, this paper proposes three ways to mitigate opportunity inequality coordinating regional development, improving fair competition in employment, and accelerating the reform of Hukou system.