Association for Public Policy Analysis & Management

This paper assesses regional inequality in contemporary urban China by predicting incomes for individual workers in multiple provinces, comparing the province of maximum predicted income to the province of residence and assessing the predicted gains from relocation. The paper performs the same comparison for the U.S. in 1940 to provide an informal baseline comparison. Workers predicted relatively similar incomes in each of the nine U.S. Census divisions. Fewer than 10% of them predicted maximum earnings in divisions other than their home division that exceeded their predicted home division incomes by more than 20%. In contrast, 45% of Chinese urban workers in 1988 predicted maximum incomes in provinces outside their home province that exceeded their predicted home province incomes by more than 50%. The same was true of 54% of Chinese urban workers in 1995, 74% in 2002 and 57% in 2008. If all Chinese urban workers received the maximum of their predicted incomes across all provinces, rather than their predicted incomes in their home province, average incomes would approximately double, interpersonal inequality would decline by 40-50% and inter-provincial inequality would vanish. In all years, predicted incomes in Guangdong province have generally been greater than in any other province. The implicit value of the right to live in Guangdong was at least 26% of income in 1988 and 41% in 1995. It declined to about 7% of income in 2002 and 2008, but only because predicted incomes in Beijing and Shanghai had risen. The gaps between predicted incomes in Guangdong and other provinces in those years was similar to those in earlier years.