Fair and unfair inequality in China

Abstract

The paper questions the normative value in the Chinese case of standard measures of aggregate income inequality such as the Gini coefficient. Evidence is adduced that people have narrow frames of reference and that they distinguish between income inequalities that they perceive to be fair and those that they perceive to be unfair. It is suggested that value judgements about what is fair or unfair can be guided by people’s own perceptions. People’s perceptions of unfairness can also be important to a government concerned to avoid social instability. The estimation of happiness functions can help to make the relevant distinctions. Examples are given of how fair and unfair inequalities might be identified, using either a criterion of people’s perceptions or one of informed judgements. Unfairness might be more strongly felt in inequalities of economic power than in inequalities of income, although the former can in turn result in inequalities of income. An argument is made for China researchers to extend inequality research and research instruments towards an economics of fairness and unfairness.