Decomposing Household Income by Source and Subgroup - Alex Eble

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Decomposing Household Income by Source and Subgroup inequality investigation recently performed by Benjamin, Brandt and Giles. (2005) Inequality between counties also contributed significantly to overall inequality. Contribution to inequality from the differences within a county between villages, however, was low. The high within-village contribution shows large inequality between individuals within a village, perhaps the difference between government officials/businessmen and farmers. The contribution from inter-county inequality could also suggest preferential political treatment for certain counties, although this is much more likely the product of differences in physical and human capital endowments and the physical characteristics of the area that condition the amount of government investment received. (Jalan and Ravallion 2002: 343) Inequality between villages within a county does not exceed ten percent of total inequality for either index, a marginal contribution when compared to the other two regional contributors. This suggests that the average incomes of villages are fairly evenly distributed within each county. Contriubution to Income Inequality (Theil's T) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Single Income Response Income Composite Inter-county inequality Within-county, intervillage inequality Intra-village inequality Figure 1 – Regional Contributions to Overall Income for the CV 9
Contribution to Inequality (CV) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% Decomposing Household Income by Source and Subgroup 0% Single Income Response Income Composite Inter-county inequality Within-county, intervillage inequality Intra-village inequality Figure 2 – Regional Contributions to Overall Income for Theil’s T To further test theories about natural resources I examine the regional contributions to inequality for different income factors. As shown in figures five and six, inequality stemming from within-village income differences still dominates inequality contributions for each income factor. The character of its dominance, however, varies among factors. In agriculture, differences between villages within a county and between counties account for 30 percent of overall inequality according to Theil’s T index. 9 Again, this seems likely to be the result of geographical and political factors as in Jalan and Ravallion, i.e. geographically-conditioned access to public resources. Inequality in earnings from family business, on the other hand, stems almost entirely from differences within a village. This is also to say that revenues from family business are fairly equally distributed between villages and counties. Income from remittances, however, has a different structure of contributions to inequality. Over 20 percent of inequality in income from remittances is accounted for by differences across counties. To understand this, one has to better understand the nature of migration in China. Regional economic disparity, a local population’s level of human capital, a location’s proximity to urban centers, and a given location’s population density are all positive correlates of the likelihood to migrate and thus of the amount of remittances as they are calculated in this analysis. 10 (Fan 2005) Over 10 percent of inequality springing from income from handicrafts can be accounted for by revenue differences in handicrafts between villages. This could be indicative of cultural differences between villages and as well as the presence of village-level cottage industries. According to field studies of Thai ethnic craft making, the success 9 Notice that this is only 10 percent according to the CV. The significance of this difference will be discussed shortly. 10 Remittances are the response to question A6 of the survey: “In Question A1, you mention that some household members are leaving the village to work. What’s their total income this year?” 10
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Decomposing Household Income by Source and Subgroup - Alex Eble

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