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Widening income gaps could hinder growth

By Cai Yi (China Daily)
Updated: 2008-08-12 14:30

The income data of employees in all sectors in the last three decades suggested that the income gap between different industries was widening, especially after 2002. And such a gap is believed to be casting its shadow on economic growth.

This is the conclusion of a State-sponsored study on income policies, and researchers attributed the widened income gap to industrial upgradation and several other elements.

Gu Yan, a PhD degree holder with Renmin University of China and a participant in the study, pointed out that the average income of employees in the industries of electricity, gas and water was the highest across the society in 1978, which was about 2.17 times of that in social services, which was the lowest at that time.

In 2006, the industry of information transfer, computer services and software gave the best pay to its employees, which was 4.69 times of the income for people in agriculture. In some provinces, the difference was as dramatic as 6 times.

Over the past three decades, the income difference once narrowed, while it became more extensive after the mid-1990s.

Such a change stemmed from the changing positions of different industries in the income hierarchy.

Employees in the social services, medical care, sports and social security and education, entertainment and broadcast media used to get the lowest income. Since the 1980s, however, they have all witnessed unprecedented growth in their incomes. They achieved an annul income growth rate ranging between 16 and 24 percent between 1978 and 1992.

As a result, their accelerated income rise narrowed the overall income gap for the whole society. And the momentum of their income rise was carried on after that period.

Besides the industries mentioned above, the finance and insurance industries, real estate industry, and science and technological research also caught up with other industries in terms of income rise since the mid-1990s. All of them have an annul income rise between 12 and 20 percent.

About the same time, agriculture, manufacturing, construction, wholesale and retail distribution, all of which were traditionally low-paying industries, did not have impressive income rises.

Agriculture, which offered the least income, had a 9 percent annual growth in income rise between 2002 and 2006.

Looking into these changes, Gu Yan thought the primary reason was industrial upgradation. Along with economic development, the industry structure is sure to upgrade to adapt to the new needs of the economy.

The new sectors of the economy, especially the service sector, are sure to offer higher pay than the traditional ones. Finance, science and technological research are both examples of this.

As to agriculture, it is not likely to give attractive income to employees in addition to safeguarding the country's grain security.

Another important element behind the income changes lies in the markets of different sectors. For most industries, they face a market of competition. After the central government launched a reform to State-owned enterprises in the 1980s, the market competition became intensive for most industries.

In these industries, the businesses had to slow down salary rises to control their costs.

By contrast, the businesses in monopoly sectors do not have the same pressure. With a higher-than-average increase in business income, profit and overall payment, the monopoly players did not have a considerable increase in the number of their employees. Therefore, the per capita income in monopoly industries saw dramatic growth over the past decades.

In 2006, the social services, construction and wholesale and retail distribution, all of which were competitive industries, took about 20 percent in the whole society in the jobs they offered. But their overall payments to employees took only 15 percent.

In the same year, industries of electricity, gas and water, finance and insurance, transportation and post services, all of which were under different degrees of monopoly, offered about 10 percent of the total jobs while their total payments were 15 percent of all.

Quan Heng, a researcher with the Shanghai Academy of Social Sciences, thought the widened income gap will have a negative influence on sustained economic growth.

Acknowledging the authorities' efforts in narrowing the income differences, Quan said that China is seeing a rise in income gap faster than many developing countries.

According to Quan, the income gap has directly reduced consumption. The shrinkage in consumption, coupled with the investment fever of the better-offs, might be a cause of deflation, which will be a shock for economic growth.

Quan suggested that the authorities adopt more policies to ensure a fair income distribution and include narrowing income gap into its economic policy targets.

Schemes should be established to ensure the average income earners, especially those of middle and low income groups, can see a regular rise in their income. And the government should also increase its fund allocations in social security, employment promotion and in assisting the lives of disadvantaged groups.