Based on the Lewis Dual Sector model, this paper investigates how population affects income
disparity finding that the income disparity increases with urban population ratio until the ratio
reaches its critical level at which the income disparity is maximised. As urban population ratio
further increases beyond the critical level, income disparity starts falling. By applying the models
in China, we find that the changes in income disparity in China from 1978 to 2006 are mainly
attributed to migrants from rural to urban areas rather than changes in income ratio of urban and
rural residents. As the increasing urban population ratio reaches its critical level in 2001, it starts
contributing to narrowing of income disparity.