Different Faces of Inequality across Asia: Decomposition of Income Gaps across Demographic Groups

Abstract

Substantial evidence exists that economic inequality in Asia has been growing, but dimensions of this inequality and its growth are far less clear. This paper evaluates inequality in household incomes per capita across various demographic groups in income surveys from six middle and high income countries across Asia: China (2002), India (2004), Japan (2008), Republic of Korea (2006), Russia (2004, 2007 and 2010), and Taiwan (2005, 2007, 2010). These surveys, made available by Luxembourg Income Study, are unique in that they are harmonized across countries and time, cover even Asia’s developing countries, and encompass over 130,000 household records. This study describes patterns in overall inequality, inequality in various quantiles of national income distributions, and income differentials across various demographic groups. Income gaps due to households’ rural/urban residence, administrative region, education and employment status, and gender are assessed at various income quantiles using unconditional quantile regressions, and are decomposed into parts due to differentials in household endowments and parts due to differentials in returns to those endowments. Japan, Taiwan and Korea have very low degrees of overall income inequality by world standards, while India and China have high levels. Russia has a medium degree of inequality, sluggishly improving over time. Rural/urban income gaps are evident across all evaluated countries, but they are particularly high in China, India and Russia, accounting for a large share of overall inequality. The rural/urban gap has been falling in Russia and Taiwan. Inequality between disadvantaged and advantaged regions is high in China and India, followed by China and Taiwan. Over time this gap stagnated in Taiwan and further deepened in Russia, disagreeing with claims of market integration and convergence in recent Russian reports. Education gap is an important component in overall inequality across most countries, especially in China and India. Employment gap is notably large among poor households in Korea and Taiwan, due to differential returns to household endowments, suggesting that non-employed individuals have similar skills as their employed counterparts, but markets and welfare state do not bestow them with adequate compensation for their skills. Gender gaps are surprisingly small across the six counties – women appear to have a similar distribution of endowments as men, and their returns to them are not significantly lower. Polarization arises in the evaluated societies whereby a small group of households come in possession of large stocks of endowments and concentrate in cities and advantaged regions to receive high returns on their endowments. The rest of population, notably in India, lack resources to invest in market-valued characteristics to lift themselves up. Overall, education and the return to it, geographic location and household composition play important roles in driving economic inequality – and suggest viable ways to control it – across demographic groups.