Abstract
During the period after 1978, China’s countryside experienced sweeping changes in economic and social institutions and incentives. The result has been an unprecedented growth in household income as well as an increase in inequality in the distribution of income. To understand these two related phenomena, it is important to know what factors determine household income in rural China. This chapter tries to shed light on this question by making use of the data from our 1988 household survey.1
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Notes and references
See Chapter 1 for an account of the level of household income, the trend in inequality and the description of the survey of 10 258 rural households. In the present analysis 41 households were excluded because their provincial location could not be identified because of errors in coding.
One could question the validity of the assumption by arguing that current income is a good proxy for past income and wealth and thus current income could be used to explain housing net worth. If this argument is valid then our estimation below of the total income function entails a problem of simultaneity. We have neglected this issue, partly because the rental value of owned housing is no more than 10 per cent of household income.
Throughout this chapter linear regression models have been used. One obvious reason is that total income is the arithmetic sum of the components of income. Linear functions are consistent with the assumption of additivity of the functions for individual components. There are also difficulties in making the usual kinds of non-linear transformations of independent variables since many variables frequently include zero values requiring the use of arbitrary procedures in making transformations.
On average agricultural activities probably account for more than 80 per cent of all production activities in terms of income (see Chapter 1).
Mainland China has a total of 30 administrative divisions (all called provinces in this chapter) including three centrally-administered urban municipal areas (Beijing, Shanghai and Tianjin). Two of the provinces (Tibet and Xinjiang), together representing 1.5 per cent of China’s population, were excluded from the survey.
This information is not available in the survey data processed for this chapter. It is however possible that the raw data from the survey contains this information.
We shall follow the convention of using the term ‘highly significant’ to mean significant at least at the 1 per cent level. The term’ significant’ will mean significant at least at the 5 per cent level.
A hired manager of a private enterprise in rural China is a very rare phenomenon.
The level of significance depends on the nature of the test. If the alternative hypothesis is that the influence due to the presence of Communist Party members can have only a positive effect on family income from production, the test will be one-tailed and the t-statistic would indicate a high level of significance.
Observed variability in land endowment is indeed extremely small once a handful of outliers, presumably the users of land of poor quality, are excluded. See Terry McKinley, The Distribution of Wealth in Rural China, PhD dissertation, University of California, Riverside, 1992. Note that the complementarity between land and other factors suggested above does not necessarily present a problem of multicollinearity in estimating parameters because the composition of the package of complementary factors can vary.
The farm worker category was indeed included in one of the variants of the model. The coefficient was very small and not significant.
See Chapter 1.
Spearman’s rank correlation coefficient between wage rank and production income rank is 0.38 and is not significant.
Indeed the relationship between income from production and farm workers itself is a two stage relationship consisting of: (i) the relationship between income from production and income from farm production and (ii) the relationship between income from farm production and farm workers. As noted in the first section, we cannot distinguish these two stages because we lack separate data on income from farm production and income from non-farm production.
It is perhaps useful to note that there is no necessary conflict between the finding that the diversification of marketed output does not contribute much to income and the finding that the diversification of family labour in the direction of non-farm employment is a source of high income. Non-farm employment that brings in high income is outside family production activities and is not necessarily related to the composition of family production and its marketed component.
Note that the assumed endowments, including household size, relate to the average for rural China, not the averages for rural Guangdong and rural Heilongjiang. For average endowments in rural Guangdong and rural Heilongjiang the predicted values would be somewhat different. Observed rural household incomes for the provinces are taken from Chapter 1.
It should be noted that we are considering here the effect of a variation in the overall gender composition of the household labour force. There is evidence (see Chapter 1) that in specific occupations women earn less. That this finding coexists with the finding that total household income is not significantly affected by the gender composition of the labour force suggests that the productivity of female workers in household production activities is as high as, or even higher than, the productivity of male workers.
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© 1993 Keith Griffin and Zhao Renwei
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Khan, A.R. (1993). The Determinants of Household Income in Rural China. In: Griffin, K., Renwei, Z. (eds) The Distribution of Income in China. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-23026-6_4
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DOI: https://doi.org/10.1007/978-1-349-23026-6_4
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