The Link Between Inequality in Education and Income Inequality in China

One of the most commonly used measures of economic growth is the GDP (Gross Domestic Product). Since growth in China has been so outstanding, the overall poverty reduction has been substantial. From 1978 to 2012 China’s GDP growth reduced the number of the rural population living in extreme poverty from 250 million in 1978 to 27 millions in 2010. Despite these numbers, however, income inequality rose.

Evidence showed that in the 1980s, the Gini coefficient in China was around 0.3, while it jumped to nearly 0.55 in 2012. It's important to consider that a value of 1 corresponds to a single individual having all the income in the economy. In addition, recent studies used the CI (the indicator of ill-health score) to measure the health inequality of migrant workers using a relationship between the cumulative population (ranked by income) and the cumulative ill-health score. A negative value indicates that poor health is focused on low-income groups, consequently, a pro-rich health inequality. For instance, the CI in China showed a value of -0.0866 in 2016.

The aim of this work is to present and analyse one policy using the resources already in use in the scholar system with no extra costs for the government and or changes in taxes. It is also important to consider that a tax is a custom collected for general government services while a fee is a levy collected to provide a service that benefits individuals from which the money is received.

In particular, I am going to illustrate a conceivable policy promoting income redistribution in China, providing more education opportunities by setting different universities tuition fees depending on the area of living, to encourage applications in specific courses for students from lower social economic groups stimulating the overall labour productivity.

Education inequality can be addressed as one of the reasons to cause income inequality. Poor children and young people have less chance to access higher education since low-income decreases the potential accumulation of 'human capital' (knowledge) and therefore forces poor families to cut investments in education. Since the labour force and its efficiency in production can be highly dependent on educations levels (perhaps in a system that generally promotes and rewards higher degree) this would in turn result in smaller salaries for people of the same age from different regions. In China, the considerable difference in income and education between urban and rural areas comes in support of this idea.

Tailoring the university tuition fees among different majors depending on sectors and areas could be a possible strategy. But can a higher education really have the potential to increase wages? The benefits of adopting this policy and the answer to this question can be illustrated by measuring the ratio of wages in the US earned by someone with a college degree compared to the wages earned by someone with a high school degree.

This phenomenon can be expressed with basic supply and demand curves. In the late 1960’s the college/high school relative wage was fairly high. Then the supply of college students increased (a shift from S1 to S2), driving the ratio down until 1979.

It’s important to notice that the fall in the ratio from 1971 till 1979 has been caused by the increasing numbers of students going to universities. Indeed, the earnings premium fell from 60 per cent in 1971 to about 45 per cent in 1979. Supply continued to expand (the percentage of the labour force with a college degree grew from 22 per cent in 1979 to 29 per cent in 1994 , a shift from S2 to S3). The demand for college-educated labour increased as well and the wage ratio rose quickly reaching a solid 80 per cent for those with a college degree (a shift from D1 to D2). In China, the same result has been achieved after 20-plus years of economic reform with market orientation, where the average return to education has increased about 60 per cent when especially compared to those in the 1980’s and early 1990’s. This goes in support that, over the years, higher education can encourage better wages. As a consequence, enterprises can expand their businesses, resulting in an increase in the demand of people to work coming from poorer areas. However, more details need to be analysed in order to make this policy attainable, including the negative impacts of its application.

Firstly, the various tuition fees should be determined directly by the university program administration offices under the permission of a non-profit local authority made of company owners and students. The employers being part of this authority could have the opportunity to list their productions problems and thoughts, inspiring students to study in certain courses for which there could be a high relative demand in the labour market, spreading innovation even in agricultural sectors. The appropriate policy response would be to provide before university useful information at appropriate stages of an individual’s education, meeting the market requirements of skilled workers in each region. For instance, over the region of the Yunnan-Guizhou Plateau where agriculture is the main sector, universities could reduce the fees of those subjects related to agriculture, letting poor students studying these majors resulting in more employment opportunities there.

Secondly, over the rural areas tuition fees should be set lower. In 2005 educational inequality between rural and urban areas showed more than 72 per cent of overall educational inequality. However, giving such decisional power to universities may lead in fact to an increase in corruption, which is another main source of income disparity in China. For instance, the local institutions may use their power for private gain by selectively promoting fees for specific courses. In this case the anti-corruption campaign of the recent years promoted the prosecution of thousands of officials across the country.

On the other side, universities would be then more sensitive to the labor demand in each region and this could promote to a less variety of courses offered, especially over the rural areas. A potential decrease in courses could lead to a loss of jobs in the scholar structures and bring also a future swap in the trend previously showed with a decrease in demand and an increase in supply, promoting a fall in wages. In this case, innovation will be vital to keep the trend with a positive outcome.

In conclusion, this policy offered a feasible solution using the resources already in use by decreasing the higher education inequality and reducing the income inequality in China. This has been demonstrated trough the theory behind the rising return to education in terms of income. It is also vital that during implementation more details and problems will be also considered.

References

1. Topel, Robert H.(1997), 'Factor Proportions and Relative Wages: The Supply-Side Determinants of Wage Inequality,' The Journal of Economic Perspectives 55-74
2. Xiaolin Pei (2018) China’s pattern of growth and poverty reduction, Art Human Open Acc J. 2018;2(2):102. Retrieved from web: 115. DOI: 10.15406/ahoaj.2018.02.00039 - Shao, C. et al. (2016) ‘Income-related health inequality of migrant workers in China and its decomposition: An analysis based on the 2012 China Labor-force Dynamics Survey data’, Journal of the Chinese Medical Association. Retrieved from web: https://www.sciencedirect.com/science/article/pii/S1726490116300594?via%3Dihub
3. Dandan Zhang, Xin Li and Jinjun Xue (2015) 'Education Inequality between Rural and Urban Areas , MIT Journal Asian Development Review, Volume (32)1. Retrieved from web: https://doi.org/10.1162/ADEV_a_00042
4. Heckman, James; Li, Xuesong (2003) Selection bias, comparative advantage and heterogeneous returns to education: Evidence from China in 2000, The Institute for Labour Market Policy Evaluation (IFAU), Working Paper No. 2003:17, Sweden. Retrieved from web: http://hdl.handle.net/10419/82147
5. Gottschalk, Peter, 'Inequality, Income Growth, and Mobility: The Basic Facts,' 11 The Journal of Economic Perspectives 21-40 (Spring 1997)
6. Christopher Grandy (1998), The Returns to Education, DBEDT, Economics Department journal 1998;36(4):49, University of Hawaii.
7. Qiang, Fu and Qiang, Ren (2010),Educational Inequality under China's Rural– Urban Divide: The Hukou System and Return to Education, Sage research Article: https://doi.org/10.1068/a42101
8. BBC (2016), 'One million' Chinese officials punished for corruption, China news.