The Impact of Biased Technological Progress on Income Distribution in China from a Multi-Sector Perspective
This paper documents that between 1995 and 2018 the evolution of income distribution in China exhibits an interesting phased pattern.For 1995-2007,shares of income held by high-income households increased at the expense of their low-and middle-income counterparts.By contrast,for 2007-2019,changes in the income distribution were largely characterized by a shift in shares from the left to the middle.Existing measures for income inequality in China have been primarily based on aggregate statistics,such as the Gini coefficient,but they are far from sufficient for gaining insight into the inequality dynamics.The current paper fills part of this gap by addressing the following set of questions.What factors account for the observed fluctuations in China's income distribution?What are their operating channels?How do they affect different income groups?This study highlights one plausible factor by focusing on the role of industry-specific biased technological progress(BTP).To this end,a multi-sector heterogeneous-agent general equilibrium model is developed to evaluate qualitatively and quantitatively the distributional implications of BTP.The takeaways are threefold.First,there is a notable heterogeneity in the way different types of BTP shape the income distribution.Second,the parameterized model well reproduces the observed phased changes in China's income distribution.More precisely,from 1995 to 2007,capital-and skill-biased technological progress jointly drove the observed income concentration.In comparison,from 2007 to 2018,skill-biased technological progress shifted income shares from the bottom to the middle and top,but the distributional consequences were partly offset by labor-biased technological progress.Third,an explicit exercise is proposed to decompose the growth of household income into components driven by aggregate expansion and distributional shift,respectively.It shows that from 1995 to 2007 household income increased significantly thanks to the rapid economic expansion,but the growth is uneven with households from the top of the income spectrum being the primary beneficiaries.Income inequality improved during the period 2007-2018,with the middle group benefiting the most from growth.The results suggest that as China enters the new normal of economic development,it is crucial to remain vigilant about the associated distributional ramifications when leveraging emerging technologies to drive growth.Policymakers need to carefully balance the relationship between growth and inequality,and constantly optimize distribution mechanisms.This paper enriches the existing literature by quantifying the contribution of BTP to the evolution of income distribution in China,and provides policy lessons for achieving common prosperity.
income distributionbiased technological progressshare of capital incomeskill premiumGini coefficient
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