Wage and Income Distribution in China: Review and Outlook

Zhang Juwei and Zhao Wen

Abstract: Under the planned economy, China’s distribution relations were relations among the state, state-run enterprises, employees and the collective economy; relationsbetween heavy industry and light industry; and relations between cities and the countryside. After China’s transition to a market-oriented economy, the distribution relations among the state, state-run enterprises and employees evolved into distribution relations between the government, enterprises and households; the distribution relations between heavy industry and light industry evolved into distribution relations between the state sector and the private sector; and the distribution relations between cities and the countryside evolved into distribution relations between original urban dwellers and migrant populations. Wage system reform was carried out throughout the transition of these three types of distribution relations. Income distribution contradictions in China, which are a problem left over from history and intrinsic to the market-based economy, eased over the years. Some people and regions achieved prosperity, and urban-rural and interregional income gaps narrowed. However, widening household income gaps pose barriers to China’s economic sustainability and vision of building a moderately prosperous society in all respects. Mechanisms to promote common prosperity are incomplete and inadequate. The disequilibrium of functional distribution is an important cause of these income inequalities. The overall wage level of ordinary workers is low. In the future, China should give full play to the decisive role of the market in primary distribution to ensure proper return to all types of factors, and enhance redistribution to achieve common prosperity for all its people.

Keywords: wage, income distribution, labor compensation, household income, Ginicoefficient, personal income tax

JEL classification code: J17; J38

DOI: 10.19602/j.chinaeconomist.2019.1.04

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