Rural Interregional Inequality and Off-Farm Employment in China

Abstract

Since 1979, when an output-related contract system was introduced in rural China, the average household income per capita of rural regions, as well as income inequality among regions, have increased substantially. A growing imbalance has emerged in the regional pattern of economic development, and this has led to serious inequality in rural areas. The problem has received much attention from both Chinese and foreign scholars, as well as from policymakers. Much research and analysis has focused on two issues. One is the trend with respect to interregional income inequality, with emphasis on the breakdown of inequality into between-region and within-region components. The other concerns the main reasons for the rise in rural inequality. Previous studies (e.g., Zhang, 1992; Zhu, 1992; Tsui, 1993, 1997; Rozelle, 1994; Wei, 1996; World Bank, 1997; Li et al. 1998) have analyzed the sharpening inequality in per capita income of households in different rural areas, and basically come to a common conclusion, namely, that income from off-farm activities — especially from township enterprises — has become an increasing and dominant contributor to overall rural income inequality. The growing contribution of rural non-agricultural activities to overall rural income inequality can largely be explained by the increasingly uneven regional development of such activities. Experience in other developing countries shows that off-farm activities, especially those of labor-intensive mediumand small-scale enterprises, often exert an equalizing influence on income distribution. The Taiwan example is typical. During the period from 1964 to 1980, when industrialization was proceeding rapidly, income inequality among Taiwan residents sharply fell. The fast-growing labor-intensive industrial enterprises on the island exerted a strong equalizing influence on income distribution (Fei et al., 1979; Zhu, 1997). The question is, why has the same practice