Regional Inequality and Labor Transfers in China*

Type Journal Article - Economic Development and Cultural Change
Title Regional Inequality and Labor Transfers in China*
Volume 52
Issue 3
Publication (Day/Month/Year) 2004
Page numbers 587-603
Throughout his academic life, D. Gale Johnson was concerned about the wellbeing
of farmers relative to the rest of the population. This was not only
because he came from a farm family but also and primarily because incomes
of farmers were generally lower than those of the rest of the population. That
farm income was lower than nonfarm incomes was true in the United States
in much of the twentieth century, which motivated his early research in assessing
the relative returns to farm labor and the mechanism of factor market
adjustments in addressing the earnings differentials, and it is still true in
developing countries.1
Johnson considered the transfer of labor out of agriculture as being essential
in reducing the income gap between farm and nonfarm people. When
his research interest shifted to Chinese agriculture in the 1980s, he immediately
noticed the substantial urban-rural income gap and the government policy of
severely restricting migration to cities and warned that “area and regional
income inequality—which is already very substantial—will grow over time”
(Johnson 1988, p. S238). Subsequently, Johnson persistently criticized Chinese
migration policy and tirelessly advocated its relaxation (Johnson 1989, 1994,
1996, 1998, 1999, 2000, 2001a, 2001b, 2002). His views were first met with
hostility but have since been widely accepted and implemented in government
In contrast, the issue of regional inequality received much less direct
attention from Johnson partly because the issue of regional inequality is largely
a corollary of urban-rural inequality. In 1989, he noted a slight deterioration
of the relative position of the western provinces between 1985 and 1987 as
a result of the increase in the importance of nonagricultural incomes favoring
the coastal areas (Johnson 1989). This initial trend amplified in the 1990s. In
his final year, Johnson shifted his attention to the widening regional income
inequality in China, an anomaly he called the “great injustice” in a paper he
was unable to finish. In the same vein as his earlier analyses of incomedifferential across areas, he paid particular attention to regional labor migration.
In what might have been the first of a series of papers, which unfortunately
became his last English publication, he tried to understand the statistics
of provincial migration from the 2000 census (Johnson 2003). In this
article, we attempt to continue the work that Johnson left unfinished by examining
the relationship between regional migration and regional income
Studies using data from various sources have shown that inequality between
coastal and inland regions of China was large and growing in the 1990s
(e.g., Jian, Sachs, and Warner 1996; World Bank 1997; Kanbur and Zhang
1999). Growing regional inequality is worrisome because it is one of the most
significant contributors to the rapidly rising overall income inequality in China.
The rise in inequality in China in the 1980s and 1990s was the largest
among all countries for which comparable data are available. As a result,
China has turned from an egalitarian society in the early 1980s to one with
average inequality in the world (World Bank 1997). The overall inequality
and its change have often been decomposed into within and between urban
and rural inequalities. Using micro data, it has been established that ruralurban
disparities accounted for more than 50% of inequality in 1995 and
explained 75% of the increase between 1984 and 1995 (World Bank 1997).
Looking more closely, however, it is evident that rural-urban disparities and
their growth are mainly regional phenomena—inland rural areas are much
poorer and grow far less rapidly than their coastal counterparts, whereas the
gaps between coastal and inland urban in both income levels and growth rates
have been much smaller.
The economic literature on China’s regional inequality has been expanding
rapidly. Recent literature has attempted to explain rising regional
inequality by uneven development opportunities. Wei and Wu (2002) focus
on the effect of globalization, especially foreign direct investment; Kanbur
and Zhang (2001) examine openness and fiscal decentralization. Park (2002)
proposes four hypotheses to explain regional inequality: industrialization, market
integration (including the labor market), the decline of state-owned enterprises,
and globalization.

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