Chapter 10: Reducing income inequality
I have heard that the lord of a state or a family concerns himself not with scarcity but rather with uneven distribution, concerns himself not with poverty but with discontent. (The Analects of Confucius) Since China reached a per capita GDP of 4300 US dollars in 2010, placing it among the upper-middle-income countries, there has been widespread concern about whether the country can avoid the risk of falling into a middle-income trap. One of the phenomena relating to the middle-income trap is income inequality. The relationship between income inequality and the middle-income trap is twofold. First, as a fast-growing economy slows down or stagnates, so too does its income growth. No evidence has ever been found that income distribution can be improved under the circumstances of economic stagnation at the middle-income stage. Second, in such a scenario that income inequality becomes so aggravated that no policy instruments can stop it, social stability and social cohesion risk jeopardization, and inequality would deter the sustainability of economic growth. As the Chinese economy enters its new stage, the Chinese people have had increasingly high expectations of a significant improvement in income distribution, which poses an urgent challenge to the government. Meanwhile, with the arrival of the Lewis Turning Point being signaled by labor shortages and wage increases for ordinary workers, conditions are ripe for narrowing the income gap formed during the typical dual economy period.
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