Decomposition of Income Gaps Across Socioeconomic Groups: The Case of Six Asian Countries

Abstract

This study applies unconditional quantile regressions estimated using recentered influence functions to analyze income gaps based on households’ residence, education and employment status in six Asian countries. China, India, Japan, Korea, Russia and Taiwan are found to represent different demographic corners of Asia and different stages of development. Rural/urban gaps exist across all six countries, particularly China, India and Russia, but have been falling in Russia. Rural households face mobility barriers and lack decent employment opportunities, thus lacking incentives for skill investment. Gaps between less/more educated households are also prevalent. Less educated households tend to be rural and face low returns on their other marketable characteristics. In China and India, gaps by employment status surprisingly favor households with non-employed heads. In India, a non-working class of rural rich live off saved wealth or remittances from urban professionals. In China, a class of rural poor appear to live off remittances from migrant laborers. We conclude that Asian emerging economies should strengthen their rural assistance programs, and lower the mobility and resettlement barriers, to improve rural households’ access to education and employment.

Keywords: Income Inequality; Unconditional Quantile Regression; Recentered Influence Function; Blinder-Oaxaca Decomposition; Asia; Luxembourg Income Study

JEL Classification: D31; D63; N35