Earnings Instability and Earnings Inequality inUrban China: 1989–2006

This paper investigates the evolution of earnings inequality in urban China from 1989 to2006. After decomposing the variance of log of earnings into transitory and permanent twoparts, we find that both components are important contributors to the total variance ofearnings. We also find that the share of the transitory part has been decreasing from early1990 to 2004; however, this decreasing trend is reversed from 2004 to 2006. Comparedfemale to male, though these two populations share similar trends in the changes oftransitory and permanent components, changes are more pronounced for female than formale. Our results suggest that the time-invariant part and time related part in permanentearnings are negatively correlated. This implies converge of earnings profile in long run andalso implies that there is more mobility within the distribution of long-term earnings...