关键词：工资；收入分配；劳动报酬；居民收入；基尼系数；个人所得税JEL分类号： J17; J38
2018年，我国的人类发展指数排名上升到了第86位( U N D P，2018)。其中，以购买力平价计算的人均国民总收入达到15270美元，排名第77位，已经是实实在在的中等收入国家。同时，我国的产业结构更加合理，经济增长方式更加可持续，改革开放成果更加丰硕，社会发展前景更加看好。这一系列成就的取得，离不开正确合理的收入分配机制。
were consistent with China’s national conditions at that time. However, since reform and opening-up in 1978, great transformations have taken place in China’s economic and income distribution systems. China evolved from an agricultural country into a service-based economy. Dominant public ownership gave way to a diversified ownership structure. Egalitarianism was replaced by a diversified income distribution pattern, where distribution according to labor held sway.
From 1949 to 1978, China’s distribution relations were relations among the government, state-run enterprises, employees and the collective economy; relations between heavy industry and light industry; and relations between cities and the countryside. After 1978, distribution relations among state, staterun enterprises and employees evolved into distribution relations among government, enterprises and households. Distribution relations between heavy industry and light industry changed into distribution relations between the state sector and private sector. Distribution relations between cities and the countryside were replaced by distribution relations between original urban residents and migrant populations.
Public ownership remains the mainstay of China’s economy. However, the nonpublic economy has developed rapidly and plays an important role in growth, employment and market dynamism. How to promote inclusive growth that benefits all people has been and will always be a key question facing Chinese economists and policy-makers. The Report of the 19th CPC National Congress states that: “We should adhere to the principle of distribution according to labor, increase return to labor while boosting productivity, and create more opportunities for people to earn labor income.” Reform of the wage system involves factors in the distribution relations between capital and labor, as well as among various sectors, employment groups and residents. It is a key aspect of China’s income distribution reform in the recent period.
On the eve of the 70th anniversary of the founding of the People’s Republic of China, it is important for us to take stock of China’s income distribution reform and look forward. This paper offers a review of China’s wage and income reform process since 1949, investigates the current income distribution situation, and envisions future income distribution reforms.
2. Wage and Income Distribution Relations under the Planned Economy
After 1949, China’s income distribution changed from an egalitarian ration system to a hierarchical wage system, where one’s wage was determined by one’s rank ( Yang, 2007). However, decisionmakers could not reach a consensus on whether a hierarchical wage was consistent with socialist income distribution by offering more pay to encourage more work. For this reason, before 1978, income distribution relations in China were constantly adjusted. China adopted a highly centralized planned economy under the “distribution according to labor” principle, and adjusted income distribution to accommodate national, collective and personal interests. Such adjustments involved the government, state-run and collective enterprises, their employees, and farmers. Pre-1978 distribution relations in China can be divided into two stages: In the first stage, income distribution was dominated by distribution according to labor under the public ownership economy, supported by other economic elements. This system was highly centralized but left room for private economic elements. In the second stage, China adopted an egalitarian income distribution system. While wage gaps appeared to be limited within the household sector, from a broader perspective, welfare distribution was highly uneven among people of different ranks, including housing, personal secretary, security guard, chauffeur, car, logistical service, nanny, chef, special supplies, healthcare and education benefits. In this sense, real household income gaps before the reform and opening up in 1978 may not be as small as the Gini coefficient made them appear to be.
2.1 Two Rounds of Wage Reform
2.1.1 Wage adjustment and the first wage reform before and after 1949
In the early stage, after the founding of the People’s Republic of China in 1949, the coexistence
of multiple distribution systems, including both a ration system and a wage system, could not keep up with changing situations. The old wage system was chaotic. It could not reflect the principle of distribution according to labor and impeded national economic planning and regional development balancing. In August 1950, the Ministry of Labor and the All-China Federation of Trade Unions enacted the Regulations on Wage (Draft) to determine three principles for reforming the wage system, i.e. the reform should: first, help create a nationally unified reasonable wage system; second, improve people’s living standards and receive support from most employees; third, take into account national fiscal power and relations with workers and farmers, and avoid increasing the burden to the government. With the development of the socialist public ownership system, conditions became right for distribution according to labor. Around 1952, China carried out a nationwide wage reform for its various administrative regions.
(1) “Wage point” was a nationally unified unit for calculating wage. The types and quantities contained in wage points were specified as well. Each wage point was converted into five types of physical goods, including grain, cloth, oil, salt and coal (see Table 1).
(2) Based on the principle of distribution according to labor, China created a new wage hierarchy system for workers and employees, reforming the piece wage system, creating an incentive system, and enacting standards for workers’ technical skills level. Most state-run enterprises adopted an eight-grade wage system, while a few adopted a seven-grade wage system. Prioritizing heavy industry, technical complexity, and workers’ skills level, seven or eight wage levels were identified in an ascending order.
(3) The ration system was changed into the wage system for state functionaries. In July 1950, the Ministry of Finance enacted the Temporary Ration Standards for Central Government Institutions for 1950. Under these ration standards, the living expenses and other allowances of state functionaries were all converted into rice quantities. Such living expenses included grain, vegetables, coal and fine grain, clothing, cotton quilt, holiday and healthcare allowances. Ration standards were divided into high, medium and low standards, corresponding to a monthly supply of 112.5, 82.5 and 65 kilograms of rice, respectively, for each person. Other allowances included clothing, technical skill, healthcare, elderly
care, women and childcare (allowances for women’s sanitation, childbirth, childcare, nursing cost, cost of living for children aged between six and 15), as well as housing, utilities and furniture allowances. Food and allowances were supplied to state functionaries according to the above three standards, and the rest continued to be supplied by the government as usual. This was the first step in the transition from the ration system to the wage system.
2.1.2 The Second wage reform
The first nationwide wage reform was carried out in various regions. A nationally unified wage system was not yet established. After the founding of the People’s Republic of China in 1949, China started to concentrate on post-war economic development. During this period, workers were frequently relocated from one place to another where they were paid differently due to inconsistent regional wages. From 1949 to 1952, during China’s economic recovery, employees enjoyed a faster wage growth compared with farmers, and higher salaries in cities attracted farmers to move to cities. From 1953 to 1955, China did not raise wages nationwide. This period is characterized by a price hike in consumer goods that resulted in the real wage of employees falling. Meanwhile, China enjoyed a rapid development of productivity that provided fairly strong material conditions.
In this context, the State Council adopted the Decision on Wage Reform in June 1955 to abolish wage points and implement money wages. Wage raises were subject to national industrial and agricultural development and political and economic tasks. The wage level of employees was to be compatible with productivity, and productivity growth had to exceed wage growth. Based on China’s industrialization policy, the priority was to raise the wages of skilled workers, scientists and technicians in heavy industry sectors and key regions.
This reform unified the wage scale of enterprise workers and the technical standards of industrial workers. However, there was a widening in the multiplier between maximum and minimum wages, between skilled and nonskilled workers, between intensive and less demanding labor, between harsh and normal weather, between harsh (such as subsurface operations) and normal working conditions (aboveground operations), and between technical and non-technical jobs (Tables 4 and 5 show an example of
grade-eight workers and managers at state-run enterprises in Liaoning Province, where complete industries were located). Different wage standards were adopted for commercial enterprise personnel (salespersons, warehouse keepers, buyers and service staff) in retail, grain, foreign trade and distribution and other sectors. Within each sector, wage standards were specified for different lines of business. Wage standards were separately determined by competent authorities in charge of geology, railway, civil aviation, postal service, marine transportation, agriculture, forestry and water conservancy sectors.
In January 1955, money wages were adopted for all military cadres and state functionaries. After the adoption of money wages, all living expenses of employees and their family members had to be covered by themselves. Money wages for state functionaries were divided into 30 grades (Table 6), ranging from the maximum of 560 yuan to the minimum of 18 yuan, or 649.6 yuan and 20.99 yuan, respectively, if the 16% cost-of-living premium for Beijing was included. The highest wage was 31.11 times higher than the lowest wage - this represents the highest multiplier and the highest wage standard since 1949.
2.1.3 Adjustment of the wage system from the “Great Leap Forward” to the end of the Cultural Revolution
During the “Great Leap Forward” ( 1958- 1960), China’s economy was extremely volatile; its wage and distribution system swung between the ration system and the wage system. The “Great Leap Forward” movement led to a surge in capital construction and the number of employees. In 1958 alone, the number of employees at enterprises owned by the whole people increased by over 20 million - equivalent to 85% of the original number of employees. Compared with 1957, the number of employees at enterprises owned by the whole people increased by 25.93 million in 1969 - more than doubled.
Rapid increase in the number of employees led to a breakthrough in wage funds. Wage funds were created by the government for payment of labor compensation for all employees of state agencies, enterprises, institutions, social organizations and other grassroots entities. They were the source of salary
payments for employees at various enterprises. These payments included: base salary paid according to wage standard, rank-related wage, seniority allowance, piece wage, reservation wage, and downtime pay, as well as various bonuses, allowances, subsidies, floating wage and wage reform benefits that were part of the total compensation. The total amount of wage funds should be compatible with the total amount of consumption materials of aggregate social products sellable to wage earners. Compared with 1957, the total wages of employees at enterprises owned by the whole people increased by 10.7 billion yuan in 1960, up 68.6%. Due to excessive growth in wage funds, consumer purchasing power exceeded market supply by 350 million yuan in 1958. In 1960, the difference expanded to 7.48 billion yuan.
In 1961, China’s policy-makers took some important policy initiatives to straighten out economic relations and adjust the economy. The need for distribution according to labor also became better understood. In this stage, in 1963, China abolished the ration system, semi-ration system and semi-wage system, restored the bonus system and piece wage system, and raised employee wages.
During the Cultural Revolution, bonuses and piece wages were distributed evenly and egalitarianism prevailed. As a result, employees earned the same wages irrespective of how much work they did and the quality of their work. This seriously disrupted the principle of distribution according to labor, frustrated enthusiasm to work, and caused tremendous losses to the economy and living standards. As a result, from 1966 to 1976, China’s industrial productivity decreased by 10%, and the average employee wage was 605 yuan in 1976, down 47 yuan compared with 1965.
2.2 Changes in the Inter-Sectoral Distribution Pattern
The Party and the State have been striving for an income distribution system and distribution relations compatible with China’s national conditions. After 1949, China created new production relations, and developed a highly centralized planned economy supported by a “distribution according to labor” socialist distribution system. The principle for adjusting the distribution relations was to accommodate national, collective and personal interests. Such adjustments involved the government, state-run and collective enterprises, their employees and farmers. Distribution relations in China changed with the pace of its economic operation.
Initially, after 1949, China created a public- ownership economy with a dominant state sector and collective economy through confiscation of bureaucratic capital and socialist land reforms. In the countryside, farmers formed cooperatives and People’s Communes to develop a collective economy where the means of production were owned at three levels and the production brigade served as the basic accounting unit. In this stage, the means of production were under public ownership, whose only difference was ownership by the whole people and collective ownership. During this period, income from the collective economy as a share in the total national income decreased from 55% in 1952 to 41% in 1957. Income from state-run enterprises as a share in the total national income rose from 7% to 17%. Income of state-run enterprise employees as a share in the total national income increased from 16% to 26%.
Income distribution was heavily tilted in favor of the government and state-run enterprises, while individuals received a smaller portion of the total national income. From 1949 to 1978, rural populations accounted for 80% to 90% of China’s total population, but their income as a share in the total national income lingered around 40% to 50%. The rest was government income and the incomes of state-run enterprises and their employees. On average, state-run enterprises and their employees accounted for 18% and 19% of the total national income. Government income accounted for 16%. Such distribution relations underwent some changes in different periods, as shown in Table 7.
During the “Great Leap Forward,” income distribution in China was tilted in favor of steel and other heavy industries. The income of state-run enterprises as a share in the total national income increased from 17% in 1957 to 34% in 1960. The income of employees at state-run enterprises as a share in the total national income dropped from 26% to 18%, and that of the collective economy fell from 41% to
35%. The changing income distribution created problems for some sectors. In 1961, the CPC Central Committee took major policy measures to straighten out and adjust the economy, vowing to “adjust, strengthen, enrich and improve” it. These measures aimed to achieve reasonable income proportions for agriculture, light industry and heavy industry, and to adjust the proportions between accumulation and consumption and within individual industries. Enterprises restored, improved and created reasonable rules and systems. Adjustments were also made to the ownership structure and the organizational form and structure of rural People’s Communes. In 1962, state-run enterprises represented only 9% of the total national income. As income distribution became more favorable to people’s welfare, household income resumed the level it had before the “Great Leap Forward.” During the Cultural Revolution, government income as a share in the total national income plummeted from 19% in 1966 to 10% in 1976. The income of state-run enterprises as a share in the total national income and that of their employees all increased. The income of the collective economy as a share in the total national income was stable.
Meanwhile, the real salary growth of employees was far outpaced by the per capita GDP growth rate. In 1952, China’s per capita GDP stood at 119.40 yuan, which grew by more than 2.20 times to reach 382 yuan in 1978. During the same period, the annual nominal average wage of employees was 445 yuan in 1952 and 615 yuan in 1978, up only 38.2%.
For individual income distribution, distribution according to labor was regarded as the sole form of distribution in the socialist stage before 1978. All other forms of distribution were regarded as nonsocialist, restricted and abolished. “Distribution according to labor” only occurred in two forms, i.e. wage and wage points. Enterprises owned by the whole people, government institutions and urban collective enterprises all adopted the wage system, while the rural collective economy practiced the “wage point” system. Wage income was almost the only source of income for urban residents, while “wage point” income from the collective comprised the primary income source for rural residents.
Wage grades, standards and levels were uniformly set by the government, and thus more or less the same for the same industry or sector across the country. They varied slightly across various industries, sectors and regions. How much income an employee earned was unrelated to his or her employer’s profitability. In the countryside, farmers earned most of their income from production brigades as the basic unit of the collective economy. They received “wage points” at production brigades and were paid accordingly. The amount of “wage points” was determined by the net income of the production brigade, whose net income was subject to the quantity and price of the agricultural products. At that time, the types, quantities, prices and distribution of agricultural products were determined uniformly by the State. In this sense, farmers’ incomes were regulated by the State under the planned economy. Within a production brigade, farmers were assigned to work collectively. Collective work and poor agricultural productivity led to serious egalitarian distribution tendencies. Under the traditional planned system and household registration ( hukou) restrictions, production factors could not flow freely between the cities and the countryside. Industrial and agricultural products could not be traded freely. Surplus rural labor was unable to move to cities. These restrictions gave rise to and reinforced China’s urban-rural divide.
China’s personal income distribution system before reform and opening- up in 1978 was a centralized planned system. Under the public ownership and planned economy, China adopted a slightly differentiated egalitarian distribution system without implementing the principle of distribution according to labor. This led to highly equal personal incomes in China. According to statistics, China’s urban Gini coefficient was 0.16 in 1978, which was absolute egalitarianism. The rural Gini coefficient was 0.21, i.e. relative egalitarianism, and far below the reasonable scope of 0.3-0.4. From a broader welfare perspective, the distribution of housing, secretary, security guard, chauffeur, car, service staff, housekeeper, chef, special supplies, healthcare and education was highly uneven among people of various ranks. In this sense, the real income gaps in China before reform and opening-up in 1978 may not be as small as the Gini coefficient suggests.
3. Changes in Wage and Income Distribution Patterns under the Market Economy
Since reform and opening-up in 1978, income distribution contradictions that were left over from history and intrinsic to a market-based economy have eased in China, allowing some people and regions to achieve prosperity. But widening income gaps have impeded China’s economic sustainability and vision for a moderately prosperous society in all respects. Prosperous individuals and regions are yet to contribute more to common prosperity. Functional distribution disequilibrium is an important reason for and the root cause of this unreasonable income distribution. Generally, the capital factor tends to concentrate, while the labor factor tends to equalize. If the return to labor is meagre, income gaps will widen (Zhang and Zhao, 2017). Since 2012, China’s employee labor compensation as a share in the GDP has increased but remains low in absolute terms. Such a distribution pattern is not favorable to workers. Both limited share of labor compensation - a primary household income source - and slow wage growth have affected household income growth. Despite a high household savings rate, China’s capital markets are underdeveloped, making it hard for the public to profit from capital markets. China is yet to create complete mechanisms to share the benefits of its economic development to its people. Effects of economic stimulus policies implemented in a previous stage have started to diminish. Wage growth of the state sector and infrastructure construction companies has slowed. In 2017, China’s average real employee wage decreased despite the fair economic growth rate.
3.1 Share of Labor Compensation and Real Wage Level
Share of labor compensation refers to the labor compensation of the employee sector as a share in value-added of the employee sector. Unlike the rural household economy, individual economy and other forms of self-employed economy, modern economic activities take place in the form of corporations, which hire workers and distribute profits according to capital and labor factors. In this sense, the modern economy is also known as the employee economy. Such a distribution relationship is usually referred to as functional distribution. Higher share of labor compensation means that workers benefit more from economic growth.
The total amount of labor compensation in an employee economy is determined by two factors: first, the wage level of the employees; second, the total number of employees. Behind these factors, the share of labor compensation is also influenced by the industrial structure, technology and many other factors. Following the previous method (Zhang and Zhao, 2015), we calculated the share of labor compensation (see Figure 1). After China’s WTO entry, the share of labor compensation was reduced at first and then increased. From 2001 to 2011, the falling share of labor compensation was primarily driven by an oversupply of labor and a falling real wage level. Huge numbers of surplus rural labor migrated to cities and fueled the development of labor-intensive industries. Due to an oversupply of labor and a meagre wage level, the return to capital far exceeded the return to labor. Despite an increasing number of wage earners and employees (see Figure 2), the share of labor compensation decreased. With more than sufficient labor, China enjoyed a greater labor cost advantage in industries with smaller shares of labor compensation. The relative expansion of such industries is an important reason for the falling share of labor compensation (Bai, 2008; Luo, Zhang, 2009). The industrial structure was a key contributor to the changing share of labor compensation (Sun, 2012; Zhou, 2014).
After the global financial crisis of 2008, the share of labor compensation in China started to see an uptick due to changes in external demand and internal factor structure. The global financial crisis of 2008 seriously affected China’s exports to developed countries. In 2006, the net exports of goods and services contributed to 15.1% of China’s GDP growth, followed by final consumer spending and aggregate capital formation volume. From 2002 to 2007, this percentage averaged 5.5%. In 2009, however, the net exports of goods and services contributed to -42.6% of China’s GDP growth. From 2010 to 2016, the
雇员经济的劳动报酬总额由两个因素直接决定。一是雇员工资水平，二是雇员总数。在两者背后，是产业结构、技术变迁等一系列因素影响了劳动报酬份额。沿用之前的方法（张车伟和赵文，2015），我们计算了雇员经济部门的劳动报酬份额（见图1）。加入W T O之后，我国雇员经济部门的劳动报酬份额先降后升。2001年到
2008年国际金融危机之后，由于外部出口需求和内部要素结构的双重变化，我国劳动报酬份额逐渐回升。2008年国际金融危机使得发达国家的贸易支付能力受到很大影响，这对我国商品出口的影响非常明显。2006年，在最终消费支出、资本形成总额、货物和服务净出口三大需求中，货物和服务净出口对国内生产总值增长的贡献率一度达到15.1%，2002年到2007年平均达到了5.5%。而到了2009年，货物和服务净出口对国内生产总值增长的贡献率大幅度降到了负的42.6%。2010年到2016年，货物和服务净出口对国内生产总值增长的贡献率平均为负的3.4%。我国出口的商品主要是劳动密集型的，因此，能够吸纳大量就业的劳动密集型产业受到巨大冲击。国内产业逐渐向非劳动密集型产业转型。这一时期，我国内部要素结构也发生了变化。2012年前后，刘易斯转折点到来，新增劳动力数量逐渐缩小，15 ~ 64岁人口的数量下降，劳动力市场供求渐趋平
net exports of goods and services contributed to -3.4% of China’s GDP growth. Most of China’s export commodities are labor-intensive, which bore the brunt of falling trade. This forced China to shift towards non-labor-intensive industries. In this period, changes occurred in China’s internal factor structure. With the Lewis turning point around 2012, China’s labor growth slowed, and populations aged between 15 and 64 started to decrease. Labor market supply and demand reached an equilibrium. Internal and external factors caused low wages to be unsustainable. In the employee economy, the share of labor compensation increased from 41.5% in 2011 to 46% in 2016. As a result of a stable workforce and rising share of labor compensation, the nominal wage level of employees significantly increased, and the real wage level of employees slightly increased.
Figure 3 shows real wage level measured by the ratio between employee wage and per capita GDP. Despite the rising nominal wage and increasing purchasing power of wage relative to commodity prices in the decade from 2003 to 2012, the wage level of the average employee in China continued to decline relative to the economic growth rate. Rather than benefiting average workers, China’s economic growth was mostly converted into return to capital. This is the background in which China’s policymakers emphasized that “labor compensation must grow in sync with productivity.” From 2011 to 2016, the real wage level of employees increased from 0.775 to 0.836, up 7.8%. Specifically, the real wage level of urban employees increased by 8.5%, and the real wage level of other employees grew by 3.64%. In addition, the real wage level of migrant workers rose by 8.1%.
In 2017, the share of labor compensation and the real wage level of employees both declined. Labor market adjustment was behind these changes in economic performance. In the era of rapid economic growth, China’s wage growth tended to be slow. This caused the share of labor compensation and the real wage level of employees to decline - exactly what happened in 2017. In 2017, China’s GDP grew by
6.9%, faster than in the previous period. Specifically, the value-added of China’s tertiary industry grew by 8%; tertiary industry accounted for 45% of China’s total employment. Obviously, there was a significant lag in the labor market’s response to the changing economic performance. In addition, the diminishing effects of the economic stimulus in the previous stage and the slowing growth of wage levels in the state sector of the economy and infrastructure construction companies also contributed to the falling share of labor compensation and the real wage level of employees in 2017.
3.2 Changes in the Inter-Sectoral Distribution Pattern
According to the cash flow data published by the National Bureau of Statistics (NBS), we may calculate the changes in China’s income distribution pattern since 1992. Over the 1992-2008 period, government income and enterprise income as a share in primary distribution both increased. Enterprise income as a share in primary distribution increased from 17.37% to 25.26%, up 7.89 percentage points, and government income as a share in primary distribution rose from 16.57% to 17.52%, up almost 1 percentage point. In comparison, household sector income dropped from 66.06% to 57.23%, down 8.83 percentage points. The falling share of household income in primary distribution is primarily attributable to the rising share of enterprise income.
Income after primary distribution and redistribution, such as income tax, social insurance contributions or benefits, social relief and other current transfers, results in disposable income and redistribution of national income. Income tax is paid by the enterprise and household sectors to the government. Social insurance contributions include corporate and individual contributions. But in national economic accounting, social insurance contributions are recognized as labor compensation in primary distribution. In redistribution, aggregate corporate and individual contributions are recognized as social insurance contributions of the household sector to the government sector. Social insurance benefits are government transfers to households. Since household social insurance contributions in China have been higher than government expenditures on social protection, social insurance is embodied as a net transfer from the household sector to the government sector. Social relief is a transfer payment from the government and enterprise sectors to households, and mainly comprises government sector expenditures.
After redistribution, China’s national income distribution continues to feature rising shares of enterprise and government incomes and falling shares of household income. From 1992 to 1998, China’s corporate sector share in national income distribution increased from 11.70% to 21.60%, up 9.9 percentage points; the government sector share rose from 19.96% to 21.28%, up 1.32 percentage points; the household sector share dropped from 68.34% to 57.11%, down 11.23 percentage points. Compared with the primary distribution pattern, redistribution led to a reduction in corporate sector income, an increase in government sector income, and a slight reduction in household sector income. Take 2008 for instance, the share of corporate sector income was reduced by 3.65 percentage points, and the share of household sector income fell by 0.11 percentage points, while the share of government income increased by 3.77 percentage points. Through redistribution, China’s government sector received a higher share of income (see Table 8).
Household income as a share in total national income decreased both in primary distribution and in redistribution. In primary distribution, total national income distribution was tilted in favor of the corporate sector, and the increase of corporate sector income explains almost 90% of the household income reduction. The remaining 10% is explained by the rising government sector income. In redistribution, the government sector’s income as a share in the total national income further increased, the corporate sector’s income decreased, and the household sector’s income was slightly reduced. Before 2004, the share of the household sector’s income in redistribution increased over primary distribution. After 2004, it decreased by a limited margin. In 2008, for instance, the rising share of the government sector’s income in the redistribution stage was primarily attributable to the falling share of the corporate sector’s income. In redistribution, total national income distribution was favorable to the government
after redistribution. In 2015, these figures changed into -4.3%, 3.6% and 0.7%, respectively. Apart from redistribution, the rising share of labor compensation is also an important reason behind the rising share of the household sector’s income in the total national income. A major source of household income is labor compensation. In 2009, labor compensation accounted for about 81% of household disposable income. In 2015, this ratio increased to 84%. During the same period, labor compensation as a share in the national GDP increased from 31.2% to 34.5%.
In summary, before 2009, the biggest problem in China’s income distribution was the falling share of household income in total national income. Sector-wise, the falling share of household income was attributable to the increasing share of the corporate sector’s income in primary distribution. From a redistribution perspective, it was a result of income distribution in favor of the government sector. The main reason for the falling share of household income in the total national income is falling labor compensation, which is a primary source of the household sector’s income, as a share in the GDP. Despite the increasing share of capital factor income in the total national income, the capital factor income of the household sector decreased. The reason is that existing capital market rules prevent capital factor income from being converted into household income. The rising share of labor compensation in the GDP since 2012 has been a key reason behind the increasing share of household income in the total national income.
4. New Changes in Household Income Gaps and Interpretation
The Gini coefficient, released by the NBS, started to fall starting in 2009. It then increased to 0.465, but the change was limited. Does that mean that China’s income gaps have tended to narrow? We believe that despite narrowing urban-rural income gaps and regional income gaps, we cannot conclude that China’s overall income gaps have narrowed as a trend since unreported income - an important factor that influences the estimation of the Gini coefficient - is not yet taken into account. In recent years, about 20% of household disposable income has not been covered by existing household surveys, and in 2015, 19.5% of household disposable income was unreported. Operating income and property income of high-income groups had the highest statistical omission rates. The falling Gini coefficient since 2009 may have resulted from statistical omissions of high- income people. After taking the “unreported income” into account, China’s Gini coefficient increases by about 10 percentage points. This implies that the income level of China’s high- income group is higher than suggested by the statistics, and that actual household income gaps are even wider and thus require greater policy regulation.
4.1 Change in the Gini Coefficient
Quantitative distribution refers to household income gaps. Income gaps can be measured by the Gini coefficient, which ranges between 0 and 1. A higher Gini coefficient indicates a higher level of inequality. According to international experience, if the Gini coefficient of an economy is below 0.3, income gaps in this economy can be regarded as very small. If the Gini coefficient is greater than 0.4, income gaps in this economy can be regarded as more significant and social contradictions more acute. For countries with relatively complete redistribution systems such as those in Western and Northern Europe, Australia, Japan and South Korea, their Gini coefficients are usually below 0.4, and their social environment is more harmonious and stable. The Gini coefficient of Latin American countries is often above 0.5.
According to China’s current statistical method, household disposable income data are used to calculate the Gini coefficient. Prior to the release of the Gini coefficient by the NBS in 2013, many private surveys were carried out to estimate China’s Gini coefficient. It is generally believed that China’s Gini coefficient was very small and below 0.2 at the beginning of reform and opening-up in 1978. After
1990, China’s Gini coefficient started to rise, reaching 0.4 in 2000 and approaching 0.5 in 2008. Despite the limited scale of public surveys, it reflects a basic fact that income gaps in China are widening. This was verified after the release of the Gini coefficient by the NBS.
China’s Gini coefficient since 2003, according to the NBS data, is shown in the following chart. In 2003, China’s Gini coefficient reached 0.479. In 2008, this figure rose to 0.491. In 2013, the State Council issued the Opinions on Deepening Income Distribution Reform to address the issue of widening income gaps and other problems related to unfair distribution. This document offers a comprehensive and detailed description of income distribution reform priorities. With these efforts, China’s Gini coefficient started to decrease slightly in 2009. In 2015, the Gini coefficient of China’s household disposable income reached 0.462, decreasing for seven consecutive years after 2008. It was also the lowest since 2003. In 2016, however, China’s Gini coefficient increased again to 0.465.
Controlling the Gini coefficient to keep it within a reasonable range is a symbol of a country’s modern governance. In some Latin American countries with poor governance, their Gini coefficient is well above 0.5. China’s Gini coefficient has decreased over recent years, but to a limited extent. It is still rather high compared with the U.S., Japan and the U.K. According to OECD data, most OECD members had Gini coefficients around 0.3 in 2012. For instance, the Gini coefficient was 0.326 for Australia, 0.327 for Italy, 0.306 for France, 0307 for South Korea, 0.289 for Germany, 0.351 for the UK, and 0.390 for the U.S. China’s Gini coefficient is higher compared with these countries. Some reasons are related to China’s development stage, while others are institutional ones.
4.2 Interpretation of Falling Gini Coefficient
Over recent years, China has been vigorously advancing urbanization and eliminating barriers to the flow of factors between urban and rural areas to promote balanced urban and rural development. As
a result, urban-rural and interregional income gaps have narrowed. Nevertheless, income gaps in China have continued to increase as a result of its development stage and institutional factors. Putting aside these factors, the “unreported income,” which is a problem of China’s statistical system, casts doubt about the reliability of China’s official Gini coefficient.
The question is whether China’s income gaps have started to narrow. We believe that this conclusion cannot be made, at least for now. An important reason is that a significant amount of “unreported income” has been outside China’s national income accounting system, blurring China’s income distribution pattern.
“Unreported income” refers to household income that cannot be discovered by conventional household surveys. This problem has always received a great deal of public attention. Wang (2010) believes that the amount of “implicit income” omitted from statistics could be 9.26 trillion yuan, accounting for over 30% of China’s GDP in 2010. Gan (2013) considers that household income is statistically 93% of actual income. “Unreported income” can be divided into three parts: first, reasonable and lawful income that is not accounted for in statistics. Using the Hurun List, Forbes List and information about the executive pay of listed companies, Li and Luo (2011) estimated the income of high-income groups and its impact on China’s Gini coefficient. They discovered an increase of China’s urban Gini coefficient by nine percentage points and an increase of China’s national Gini coefficient by five percentage points in 2007. Bai (2015) believes that 65% of household income was omitted on average from 2002 to 2009, and implicit income accounted for 19% to 25% of China’s GDP from 2002 to 2009. China’s urban Gini coefficient was 0.5, rather than 0.34 as released by the NBS. Another source of unreported income is unlawful and abnormal income. Residents are unwilling to disclose such income, which is highly concealed. Therefore, the availability and accuracy of information presents the biggest barrier to relevant studies. Using information published by law enforcement authorities, Chen and Zhou (2001) estimated the size of unlawful and abnormal income, as well as its impact on the Gini coefficient. They
discovered an increase in China’s Gini coefficient by 9 percentage points in 1997. The third part of unreported income is virtual income. Virtual income mainly refers to property-related household income from proprietary housing services. According to Yang and Dang (2017), after virtual rent is incorporated into China’s national household income statistics, the household income gaps have generally narrowed.
These studies provide valuable references for our understanding of “reported income.” Using the NBS Cash Flow Statements, Zhang and Zhao (2018) estimated the size and structure of China’s “unreported income” from 1992 to 2014. According to the latest statistical information, China’s “unreported income” was 7.33 trillion yuan in 2015, with a statistical omission rate of 19.5%, accounting for 10.6% of the GDP. Such income belonged primarily to the high-income group (Figure 6).
Generally speaking, the high-income group is the most likely to earn “unreported income” and the most motivated to conceal their income. The high-income group also has sophisticated means to evade tax. On the contrary, the low-income group has little wealth to conceal. Huang Qifan, vice chairman of the Financial and Economic Affairs Committee of the National People’s Congress (NPC), mentioned that “some people work in the Chinese Mainland but receive salaries from overseas accounts or retain their personal wealth in their companies without receiving salaries” in order to avoid tax1. Obviously, such tax avoidance is beyond the means of ordinary workers. This “unreported income” of high-income groups inevitably affects China’s Gini coefficient in significant ways.
Without national microscopic survey data, we cannot estimate the impact of “unreported income” on China’s Gini coefficient. Nevertheless, we may provide some assumptions for discussion. The first
possibility is that “unreported income” has a significant impact on the trend of China’s Gini coefficient and reverses its downward trend. Urban-rural integrated household surveys carried out by the NBS in 2012 aimed to address the statistical problems of household disposable income, particularly the accounting of rural migrant workers’ income. We have reason to assume that estimated lower rate of statistical omissions since 2012 did not result from improving the income statistics of high-income groups, i.e. statistical omission of income reporting still widely exists among the high-income groups. This obviously has a significant impact on China’s Gini coefficient. Another possibility is that “unreported income” has a limited impact on China’s Gini coefficient. However, considering the huge amount of “unreported income” and the slow growth of China’s middle-income groups, we tend to believe that China’s actual Gini coefficient may still linger at a high level without any downward trend.
5. Concluding Remarks
Since reform and opening-up in 1978, China’s income distribution contradictions left over from history and intrinsic to a market-based economy have continuously deepened. Widening household income gaps have become a hindrance to China’s economic sustainability and vision of building a moderately prosperous society in all respects. Specifically, functional distribution disequilibrium is a major reason for and source of unequal income distribution. In primary distribution, the share of labor compensation remains low and is unfavorable to workers; wage growth also is slow - both have affected household income growth. Household income accounts for about 54% of China’s total national income. Despite slight increases over recent years, it is far from reaching a reasonable level.
Unreasonable distribution has naturally brought about significant income gaps. According to the NBS, China’s Gini coefficient started to fall in 2009, reaching 0.462 in 2015. Despite an increase to 0.465 in 2016, the change was limited. The question is, can we conclude that China’s income gaps have developed a downward trend? In our view, falling urban-rural income gaps as a positive sign cannot be regarded as a trend towards falling income gaps since “unreported income” that significantly affects the Gini coefficient is not yet taken into account. Over recent years, about 20% of household disposable income is not covered by existing household surveys. In 2015, the statistical omission rate was 19.5%. Operating income and property income of high-income groups had the highest omission rates. The falling Gini coefficient since 2009 may have resulted from the statistical omission of income of high-income groups. If “unreported income” is included in the estimation of the Gini coefficient, China’s Gini coefficient would have increased by a large margin. In this sense, the income level of China’s high-income groups is higher than statistics suggest, and more effective policy regulation is required to adjust the income gaps.
We must bring into full play the decisive role of the market to create a reasonable and orderly distribution system, so that household income growth keeps pace with economic development and labor compensation grows in tandem with productivity. To ensure reasonable return to all types of factors, we must adjust income gaps in the redistribution and promote inclusive development and common prosperity for all people.