The Impact of Education on Income Inequality in China: Measurement and Decomposition

Abstract

In recent years, while maintaining steady and rapid economic development, the government has also achieved some results in adjusting the income distribution gap, but income distribution equity is still one of the focus issues of public concern. Since education is one of the important channels to obtain human capital and has an important impact on residents’ income level, this paper attempts to explore the impact of education on income inequality in China from the perspective of opportunity equality. Firstly, this paper uses the instrumental variable method to measure the contribution share of education in the income distribution inequality of Chinese residents, and further decomposes the proportion of reasonable and unreasonable components under the framework of opportunity equality theory. The measurement results based on the Chinese General Social Survey (CGSS) data in 2017 show that: (1) The income inequality caused by education accounts for 50.87% of the total income inequality, and the proportion coefficient has significant age heterogeneity, indicating that the difference in education level is one of the important reasons for the uneven income distribution of Chinese residents. (2) Among the income inequality caused by education in China, the unreasonable component accounts for about 44%. This part of inequality is mainly determined by environmental factors for which individuals should not bear responsibility, such as family background, social environment and individual characteristics. In the lower age group, the proportion of income inequality caused by education attributed to environmental factors is higher. (3) The decomposition results based on the Shapley value method show that among all environmental factors, the contribution share of family cultural factors is as high as 42.94%, followed by family economic factors and social environmental factors (23.50% and 23.36% respectively), and the remaining 10.20% is attributed to individual characteristic factors. There are some differences in the contribution share of various environmental factors in different age groups. In addition, the longitudinal comparison of the measurement results based on CGSS data in different years shows that the above main indicators fluctuate irregularly in a small range, and the basic conclusions of this paper are robust. This study examines the important role of education in the income distribution of Chinese residents from the perspective of equity, and further explores the causes of unreasonable and unfair parts of income inequality caused by education, which provides further theoretical support and factual basis for the implementation of relevant policies to promote income distribution equity.