Wealth gap shrinkers

Efforts needed to create jobs, increase people's incomes and improve the income distribution pattern

During the 13th Five-Year Plan period (2016-20), personal income growth has basically been in line with economic growth, labor remuneration has been raised in step with productivity growth and urban and rural incomes have continued to rise.

The trend of the last 10 years shows that residents' income growth has basically kept pace with economic growth. During the 14th Five-Year Plan period (2021-25), the basic conditions for synchronization are still in place.

Judging the income growth of residents is based on household survey data released by the National Bureau of Statistics. Data show that the total disposable income of residents in 2019 was $6.54 trillion. In recent years, the proportion of total disposable income of residents in GDP has fluctuated between about 40 percent to 48 percent. Since 2002, this proportion has fallen for a relatively long time, dropping to 39.8 percent in 2011, and then increasing to 44.5 percent in 2016. In 2017 and 2018, this proportion was 44 percent and 43.8 percent respectively, and in 2019 it was 43.4 percent.

However, we also need to pay attention to the changes in the income gap. From 2013 to 2019, although the income gap first narrowed, it subsequently widened. During the 14th Five-Year Plan period, only by intensifying redistribution can the widening income gap be effectively restrained.

During the 14th Five-Year Plan period, the tasks of improving the income distribution pattern and increasing people's incomes face some new challenges. First, given the economic downturn, wage growth may slow down, which is not conducive to further narrowing the income gap. Second, the accelerated application of new technologies has a tendency to concentrate wealth, which increases income disparities. Third, the proportion of salary tax in personal income tax is becoming bigger, which is also not conducive to narrowing the income gap.

To narrow the gap, the remuneration for labor should be raised and a market and institutional environment established should be conducive to increasing the share of labor remuneration in order to guarantee distribution fairness.

To boost personal income growth during the 14th Five-Year Plan period, the distribution pattern of national income should be further adjusted, the primary distribution standardized and the adjustment of redistribution intensified. The mechanisms for determining wage levels should be improved, along with the mechanisms for regular income increases and mechanisms for ensuring payment. A collective wage bargaining system should be also introduced.

The mechanism for increasing the minimum wage, the mechanism for evaluating the contribution of factors in the market and allocating them according to their contribution, and the wage system that adapts to the characteristics of government agencies and institutions also need to be improved. Improvement of the individual income tax system should be accelerated so that it combines comprehensive income with classified income.

In light of economic development, price changes and other factors, the minimum wage standards will be adjusted in due course and the minimum wage standards set for some industries. But the legitimate rights of workers must be safeguarded and the mechanism for guaranteeing wage payments strengthened, focusing on areas and industries where the problem of unpaid wages is prominent and those industries that are prone to defaulting.

The impact of the pandemic on unemployment has been transformed into structural unemployment, which takes a longer time to deal with. The new economy meets the needs of society, not only can it expand employment on its own, but smart technology can dramatically reduce the skills requirements for some jobs. Developing the new economy, especially the platform economy, is an important way to promote the employment of gig workers.

As they create more jobs and help raise the income levels of low-skilled workers, labor-intensive enterprises, small and micro enterprises and innovative technology enterprises should be supported. Policies should be introduced to encourage independent entrepreneurship, such as small-sum guaranteed loans and financial discount rates, and the gig employment platforms should be included in employment subsidy policies.

The financing situation for small, medium-sized and micro businesses should be also significantly improved to reduce their comprehensive financing costs.

At the same time, the coverage of unemployment insurance should be expanded and protection of the hidden unemployed strengthened. Flexible employment workers and migrant workers with relatively high unemployment risks should be gradually brought security. In the future, greater importance should be given to the role of unemployment insurance as the basic guarantee for the unemployed using big data and other means to curb insurance fraud and improve the security of the fund, while scientifically setting the insurance threshold and payment standards suitable for non-traditional employees.

After the elimination of absolute poverty, relative poverty will become an important aspect of China's poverty alleviation. Drawing on the experience of developed countries, the poverty standards should be adjusted on a dynamic basis, and the standards for urban and rural subsistence allowances, social assistance, pensions and preferential policies should be steadily increased.

The basic living allowances mechanism for low-income groups in both urban and rural areas needs improving as prices spike, and the minimum living allowances for both urban and rural residents need to be gradually raised. At the same time social charity organizations should be vigorously developed.

The individual income tax system should also be improved by raising the threshold at an appropriate time to keep the number of taxpayers basically stable. Individual income tax is a policy tool which adjusts both the income gap among residents and the distribution of factors. Reduction or exemption of individual income tax can be used to compensate ordinary workers, which is conducive to correcting the imbalance of macro income distribution pattern. Meanwhile, based on the difference in the individual income tax rates between the Chinese mainland and its main competitors, overseas high-end talents and talents in short supply working in China should be exempted from individual income tax. At the provincial and municipal levels, therefore, measures should be formulated for the identification and subsidies of overseas high-end talents and talents in short supply to significantly reduce their income tax.

The author is an associate researcher of the Institute of Population and Labor Economics at the Chinese Academy of Social Sciences. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.