One Silver Lining of China's Lopsided Labor Market: Shrinking Income Inequality

In the same week that international educators are debating the comparative merits of global school systems—and whether China’s PISA scores are overhyped—a new report from China Economic Quarterly sheds light on an unintended consequence of China’s recent push to expand higher education.

The annual supply of fresh college graduates far exceeds the number of white-collar positions available in China. Meanwhile a dwindling pool of young people willing to work in Chinese factories has driven up assembly-line wages. The result, conclude GK Dragonomics analysts Andrew Batson and Thomas Gatley, is an unexpected narrowing of China’s worryingly high level of income inequality.

Over the past decade, China has rapidly expanded access to higher education. University enrollment tripled from 2000 to 2010, from 2.2 million to 6.6 million students. Unfortunately, job creation didn’t keep pace. According to survey results from China’s labor ministry obtained by China Economic Quarterly, there were 100 job applicants in mid-2013 for every 80 white-collar jobs in China. For blue-collar positions, however, the scenario was reversed: There were 100 applicants for every 125 slots in China.

Given the relative oversupply of college graduates and undersupply of lower-skilled workers in China, blue-collar wages have risen more quickly than white-collar wages for the past four years. Since 2009, professional wages have climbed 12 percent annually, on average. In the same period, average wages in manufacturing, agriculture, and construction have risen 14 percent annually.

The upshot? “All the data show households with humbler jobs and lower incomes enjoying faster income growth than those with fancier jobs and higher incomes,” observe Batson and Gatley. “China’s income inequality has been quietly getting better.” That doesn’t mean, however, that Chinese people perceive a leveling playing field. “Most Chinese people are not concerned about the Gini coefficient [measuring inequality], or the ratio between urban and rural incomes, but rather the gap between the people with connections and people without them.” And there’s no sign that the power of guanxi is waning in China.

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