Inequality, Unemployment Higher Than Expected

A new survey suggests that China’s Gini coefficient—a measure of inequality—is far higher than either other recent estimates or the 0.4 mark often said to represent potentially destabilising inequality. China has not published an official Gini coefficient since 2000, citing inadequate data. The study also found that unemployment stands at 8.05%, twice the official rate, among the urban population, and has almost doubled in the past year among migrant workers to 6%. From Bloomberg:

The Gini coefficient, an index measuring income inequality, was 0.61 in 2010, based on a survey of 8,438 households by the Survey and Research Center for China Household Finance, a body set up by the Finance Research Institute of the People’s Bank of China and Southwestern University of Finance and Economics. The survey also estimated the urban jobless rate in July 2012 was 8.05 percent, almost double the official figure.

[…] “China’s wealth gap is so prevalent between regions, sectors, and urban and rural that it’s impossible to see a meaningful decline in the Gini coefficient in the short term,” Gan Li, director of the Chengdu-based center and a professor at Texas A&M University in College Station, Texas, said at a briefing in Beijing today. “Depending on market forces alone can’t resolve the gap and China must change the structure of income distribution and rely on massive fiscal transfers to narrow such a yawning disparity.”

Higher fiscal revenue and a bigger share of state-owned enterprises’ profits could give the government about 3.8 trillion yuan ($610 billion) a year to spend on income redistribution, said Gan, who has a doctorate in economics from the University of California at Berkeley. In the long run “China needs to beef up funding for education and reduce inequality of opportunity to lower the income gap,” he said.

Although higher than expected, the new figure may still be too low. From Chen Dujuan at Global Times:

Zheng Xinye, a professor at Renmin University of China, told the Global Times Sunday that the real Gini coefficient may be even higher than 0.61, since the super-rich are hard to reach for surveys.

“The widening income gap was caused by restrictions that kept small and medium-sized companies from entering high-profit sectors, as well as by employment discrimination,” Zheng said. Data showed that the wage gap between finance and agriculture, which earn the highest and lowest wages respectively, has widened to a ratio of 4.2 in 2010 from 2.24 in 1997.

Zheng said that low standards for labor and environmental protection have increased the wealth of the rich at the cost of the health and income of the poor.

[…] Greater urbanization will ease the income gap, Pan Jiancheng, deputy director-general of the China Economic Monitoring & Analysis Center of the National Bureau of Statistics (NBS), said at the survey release press conference, noting that China needs to boost economic transformation and improve social security.

The Gini coefficient is not a definitive or comprehensive measure of inequality, however, its widespread use arising in large part from its simplicity and convenience. Mark Gimein described the measure’s limitations at Slate (via Trey Menefee) in 2008:

[…] Measuring inequality, or what most people think of as inequality, is not simple. And, perhaps more importantly, the standard measure of inequality tells us a lot less about poverty than we might think or hope.

To see why, let’s look a little bit into the mathematics of inequality. The Gini index is a number that expresses the proportion of income that goes to people on various steps on the economic ladder. In a country in which everyone has exactly the same income, the Gini coefficient will be zero. On the other hand, in a country in which all the income goes to one person, the Gini coefficient will be 1, and the Gini index will be 100 (technically, it’ll never reach the perfect 100, but it’ll be incredibly close). In real life, the United States has a Gini index of 45, and Norway’s is 28.

[…] The problem here is that Gini index alone does not yield enough information to indicate what proportion of a country’s people are poor—even if we know the country’s total income. A measure omitting that crucial concept doesn’t get to what people really mean when they talk about inequality. Take it out, and most of the rhetoric about inequality loses its soul.

Comparing the Gini coefficients of countries at different stages of development is also problematic, as Tsinghua University economist Wei Jie explained to People’s Daily Online in 2006.

At The Wall Street Journal, Tom Orlik described the study’s findings on unemployment:

The survey represents the most ambitious attempt yet to map China’s labor markets, household income and asset ownership—areas where the official data are widely regarded as inaccurate or deficient.

Employment is a hot-button issue for China’s ruling Communist Party, with the risk that high levels of joblessness could trigger destabilizing unrest. At the end of 2008, severe job losses for migrant workers helped prompt the government to unleash a massive stimulus package.

[…] Despite a significantly higher rate of unemployment than reported by the government,China’s labor market still appears to have weathered 2012′s growth slowdown relatively well. A loss of around 4.5 million jobs for China’s migrant workers in the past year has taken their unemployment level to 10 million, still well below the 23 million out of work in 2009.

That the official figure seems inaccurate comes as no great surprise. Last month, Caixin’s Zhang Huanyu pondered the official urban unemployment rate’s mysterious steadiness since the start of 2010:

The urban unemployment rate announced by the government has remained at 4.1 percent from the start of 2010 to June 30. Even during the worst of the global financial crisis in 2009, the figure climbed to only 4.3 percent.

When I talk to government officials and scholars, they unintentionally reveal the importance they attach to the statistic. But the fact the figure barely changes is a sign its accuracy can be doubted. Unfortunately, this is true of many statistics released by government agencies in China.

[…] The National Bureau of Statistics once promised that starting in 2011 it would release more accurate unemployment figures, but so far we haven’t seen them.

In March, bureau director Ma Jiantang was asked about the unemployment rate and said: “From the research we have done, the gap between our data and the real situation is narrowing.”