China is one of the few countries in the world that uses a household registration (hukou) regime to prohibit migration not only from rural to urban areas, but also from one province to another. Although it has not been well acknowledged and discussed by academics and policy makers in China the impact of the hukou on overall income inequality is significant, as found in the present study. Despite this registration system the country has achieved remarkable double-digit annual economic growth in the last two decades of economic reform, and the hukou regime and the corresponding migration restrictions remain effective. As a result, income differentials among different regions and between rural and urban sectors have been growing (World Bank 1997, p.27). This study provides a measurement of a nation-wide Gini index on the basis of officially published provincial income data. Although this index is different from the conventional Gini index where the fundamental unit of measurement is the household the index is an overall measurement that reflects the inequality created mainly by the institutional segmentation of China's labour markets. This index has several special policy implications. First, it is an overall index that reflects income disparities not only among different provincial-level administrative units, but also between rural and urban sectors. Secondly, since it is at the provincial level where the hukou is created the index mainly reflects how and to what extent the hukou regime contributed to the country's inequality level. Thirdly, the Gini index is further decomposed into different components so the impact of inter-sector and intra-sector factors can be clearly detected. This helps to identify the main source of income inequality among different regions and sectors, and to design diferent policy packages to reduce the overall income inequality. The study is organised as follows. In the following section the nature of the hukou regime in China and its likely impact on personal income distribution, namely the enlargement of income gaps between rural and urban sectors and among different provincial administration units, is identified. How the Gini index is measured and the corresponding results are reported in Section 4.3. In Section 4.4, the Gini index is further decomposed into its inter-sector and intra-sector components. Section 4.5 concludes the chapter and presents some policy implications.
Economic Growth, Inequality and Migration p. 68-88