A tale of transition: An empirical analysis of economic inequality in urban China, 1986-2009

This paper is the first comprehensive empirical study of earnings, income, and consumption inequality in urban China from 1986 to 2009, conducted using micro-level data from the Urban Household Survey (UHS). We document a drastic increase in economic inequality for the sample period. We find that consumption inequality closely tracks with income inequality, both over time and over the life cycle. We believe that the main driver of this co-movement could be the dramatic increase in uninsurable permanent income shocks that occurred after the early 1990s, a result of the economic transition in urban China.