Unemployment, Inequality, and Poverty in Urban China (review)

This edited volume, which is based on a series of national surveys (mainly the one conducted in 1999), deals with a number of issues regarding unemployment, income inequality, poverty, and the labor market in urban China in the 1990s. The twelve chapters in the book were written mostly by economists in and outside China. The topics covered in this volume are comprehensive, which makes the book a good addition to the literature on inequality and poverty in urban contemporary China.

Chapter 1 is the introduction, and the remaining eleven chapters of the book are divided into two parts. The first part (chapters 2-8) deals with unemployment, inequality, and poverty; the second part (chapters 9-13) focuses on issues related to the emerging labor market in China. In urban China today, a crucial factor that has caused unemployment, inequality, and poverty is the massive layoffs (or xiagang) due to the economic restructuring that occurred in the 1990s and early 2000s. Chapter 2 examines the determinants and consequences of the labor retrenchment based on the 1999 survey. The authors identify a number of factors that affected a worker's probability of being laid off. Some of the findings are in line with existing research (e.g., gender, educational level, size of SOEs, skill, types of ownership, sectors of industries); others are new (e.g., regional variation except the northeast, party membership). The authors estimate that in the late 1990s, 53 percent of the laid-off workers remained unemployed, which was much higher than what the government had reported (i.e., 40 percent).

Chapters 3 and 4 address the issue of inequality against the background of the retrenchment. Chapter 3 finds that unemployment is one of the main factors contributing to the rising income inequality and poverty in urban China. In this chapter, the authors suggest that the official unemployment rate had been seriously underreported; their estimate of the unemployment rate (e.g., 11.5 percent in 2000) (p. 50) is much higher than the official one. They also find that the poverty rate for households with unemployed people (19.9 percent) was much higher than that for households without unemployed people (5.1 percent). This is not surprising. But what is interesting is that poverty rate of migrant households is also high (14 percent), yet lower than that of households with unemployed people. But the authors also acknowledge that the number of migrant households included in the sample may be too small for a conclusive assessment. Chapter 4 compares income inequality in two periods (i.e., 1988-1995 and 1995-1999). It finds that the reasons for the increase in inequality in the two periods are different. An important finding is that in the first period, a major reason for the income inequality was the relatively stronger income growth at the top end of the distribution. In the second period, households at the top enjoyed significant income gains while those at the bottom experienced a decrease, mainly due to economic restructuring. An inevitable outcome was the increased gap between the rich and the poor.

Chapter 5 shows that Chinese urban households are capable of smoothing their consumption and have a strong motivation for precautionary saving. But urban households are unable to smooth their educational expenditure. Policy implications are thus not only limited to what the author suggests (i.e., devoting the limited resources to support the most needy, namely, the disabled and the elderly). The government should extend more efforts to address the issue of education and health care. Chapter 6 shows that about 70 percent of workers received in-kind payments in the 1988 sample, whereas the percentage declined to 10 percent in the 1999 sample. The authors suggest that in-kind payments are a way through which firms evade government controls on wages. The decline in the payments is likely due to hard budget constraints and more serious financial disciplines.

Chapters 7 and 8 focus on the issue...