Non-agricultural Employment Determinants and Income Inequality Decomposition

Non-agricultural income has become an important source of rural household income and has brought with a wide inequality in rural China. This paper investigates the determinants of non-agricultural employment as well as non-agricultural income and then assesses the contribution of these determinants to income inequality with the Chinese Academy of Social Science 2003 survey data and a three-step decomposition approach. Our results indicate that education inequality accounts for 9% and 36% wage and self-employment income inequality respectively which implies that education inequality plays substantial roles in non-agricultural income inequalities. The community characteristics collectively accounts for 46% and 32% of the wage and self-employment income inequality respectively which in turn suggests that regional development is of great importance in the determination of non-agricultural income inequality.