Regional segregation or industrial monopoly? Dual labor market segmentation and income inequality in China

Using data from the 2010 China Family Panel Study and countyand industry-level statistics, we estimate cross-classified multilevel models to examine the determinants of the income gap among Chinese workers. Results show that both regional and industrial differences are important sources of income inequality in China. Taken together, they account for about one fifth of the total variation in individual income. Among them, differences in county explains 7%, while difference in industry accounts for 14% of the total variation. Further analyses demonstrate that countyand industry-level variables have significant independent effects on individual income even after controlling for individual socio-demographic characteristics and human capital resources. We also explore the potential mechanisms through which macro-level factors function in widening income gaps among Chinese workers. Our results show industrial monopolies have been a key driver of the elevated income inequality in China.