International Law

More Food for Thought on Income Inequality

By Stan

A silent revolution has been taking place in China. Somehow, without anyone noticing, the capitalists have upended the People’s Republic. Over the past few years, they have effected a significant redistribution of income away from workers. This might well be the mother of all redistributions.

Normally, in most countries, the distribution of income between labor and capital changes not at all or very slowly. For example, in the United States, the share of the economic pie going to workers has been, with some small exceptions, roughly stable in the postwar period. In China itself, this share was roughly stable for over 25 years since the Chinese economy took an outward turn in 1978.

But recently there have been tectonic shifts. Between 2002 and 2005, according to Berkeley economists, Chong-En Bai, Chang-Tai Hsieh, and Yingyi Qian, the share of the economic output going to workers decreased by about 8 percentage points, from about 50 percent of GDP to 42 percent of GDP. Which means that China—yes, the People’s Republic—now has perhaps the lowest labor share of any major country in the world.

Rather startling, huh? It should be pointed out that this sort of thing happens to countries that are developing, and the industrial progress in this country has been speedy and dramatic. However, the numbers seem to show what everyone (including the government) who lives over here already knows from anecdotal evidence - things have shifted too far too fast and workers are having trouble. Add inflation and other pressures into the mix, and you have some very worried folks out there.

This explains, to a certain degree, some of the central government economic policies designed to assist workers and farmers with respect to taxes, the costs of education and health care, etc. However, the bigger question is whether this is enough and what will the government do next to try to rectify this problem?

Full post as published by China Hearsay on February 28, 2008 (boomark / email).