Income inequality refers to the unequal distribution of income amongst households or individuals in a given economy. Income inequality is usually presented as the percentage of earnings held by a given percentage of people constituting the entire population; for instance, eighty five percent of a country’s income may be controlled by fifteen percent of citizens of that country. Income disparity usually results from disproportionate or unequal distribution of income amongst participants of the economy. It often measures the gap or difference in income distribution between the rich and the poor in a given economy.
I would assert that inflows inequality results from a small percentage of the population, usually the rich people, holding a larger portion of the total income of the country. This issue is also caused by factors such as geographical disparity, gender differences, levels of education, political factors as well as disparities in social status amongst others. According to Sidney Weintraub, economists argue that it is unfair for a few people to control relatively larger portions of the income of a country (28).
Income Inequality in China. Income inequality in China has risen rapidly in the past three decades across regions, within the provinces as well as between rural and urban areas. In my view, China has the highest level of income disparity as compared to other nations in the East Asia. According to Gustafsson and Terry, official statistics provided by the Chinese government indicates that people living in rural areas earn less than one-third of the income earned by people living in urban areas (185). In addition, inflows of urban dwellers in top five major cities in China are approximately twenty five times higher than inflows of those living in remote rural areas (Knight & Lina 72).
Wang Xiaolu, an economist in the World Bank, estimates that the wealthiest ten percent of the population in China earn nearly sixty five times the amount that the poorest ten percent do; a figure that is much higher than the data given by the Chinese government. Moreover, more than one hundred and seventy million people in China are living below the poverty line of one dollar per day according to the data provided by the United Nations. In 2008, the average per capita income ratio between urban and rural households was 4.7 times (Mai & Xiujian 136).
Causes of Income Inequality in China. One of the major reasons of income inequality in China is the adoption of a system that hinders rural to urban migration. This prevents people living in rural areas from accessing high quality services such as healthcare, education and transport that are vital for life and available only in urban areas. Thus, rural dwellers have very poor lifestyle that makes them unproductive.
However, Mai and Xiujian contrast this notion by arguing that increase in rural to urban migration has greatly contributed to increase in income inequality in China (151). Mai and Xiujian further assert that China has been experiencing the rapid increase in rural-urban migration for almost fifteen years (159-161). In my opinion, people living in rural areas often move to urban centers in search of employment opportunities, better healthcare and quality education. This has led to influx of jobless people into cities and industrial estates. Consequently, the wages rates have been drastically reduced due to the increase in supply of cheap labor as the demand for labor reduces.
In addition, most rural workers have low incomes due to the high inflation rates that increase food prices and housing costs. High food prices take away the little income earned by poor people living in rural areas; hence, further increasing income disparity between the rich and the poor.
Approaches to Reducing Income Inequality in China. In my opinion, economic policy makers in China are faced with a tradeoff between encouraging and ensuring income equality and promoting economic growth. As the income gap between the rich and the poor decreases; individuals become less motivated to accumulate wealth, work hard, make long term investments and venture into risky businesses. This leads to shrinking of the economy; hence, low economic growth.
Therefore, in order to effectively curb income inequality, the government of China should adopt economic policies that aim at reducing income disparity. For example, the government should completely abolish the agricultural tax, build cheap houses for the low-income earners, and provide social amenities such as good healthcare services and educational facilities.The government may also adopt fiscal policies that would help in narrowing the earnings gap. For instance, the government may increase its revenues by taxing income from capital gains or taxing the rich to a higher extent.
From my side, I would argue that income inequality in China could be worse than the way it is shown by official statistics. Therefore, it is important for the government to formulate and implement specific policies to curb and reduce disparities in incomes between the rich and the poor. Further inequality in incomes in China may result with more serious social problems such as increased crime rates that would further hinder economic development of China.