Identity, Inequality, and Happiness: Evidence from Urban China

Summary

This paper presents the impact of income inequality on subjective well-being using data from the 2002 Chinese Household Income Project (CHIP) Survey. We find that people feel unhappy with between-group inequality, as measured by the income gap between migrants without local urban hukou (household registration identity) and urban residents, irrespective of whether they are urban residents with or without local hukou. However, when we control for identity-related inequality and other individual, household, and city-level characteristics, inequality (as measured by city-level Gini coefficients) positively correlates with happiness. This study contributes to the inequality–happiness literature by distinguishing between the different effects of between-group and general inequality on happiness.

Introduction

In the era of globalization, the scale of immigration is growing rapidly in many countries, especially in the developed economies of North America and Europe. In developing countries, more and more people are leaving their rural homes and heading for cities. For example, in China, there are some 242 million rural-to-urban migrants, representing almost one-sixth of the Chinese population.¹ One important question concerning this population shift, essential to better understand problems in social integration and sustainable development, is whether the identity differences between migrants and local residents have led to inequality and unhappiness and the way people respond to identity-related inequality.

The enormous scale of rural-to-urban labor migration in China has exposed an institutionally divided urban–rural society. This has typically taken the form of social segmentation and inequality between urban residents who have local urban household registration (hukou) status and rural migrants who live and work in urban areas without local urban hukou status.² These connected but segmented groups form “a dual society” in Chinese cities. Although rural migrants contribute significantly to city development and are recognized as a key factor in the ongoing boom in the Chinese manufacturing industry, they suffer substantial discrimination in the labor market (Friedman and Lee, 2010, Wang et al., 2009, Zhu, 2004). In evidence, rural migrants find themselves excluded from many urban jobs (Chan & Buckingham, 2008) and face many formal and informal obstacles to securing employment (Li, 2003). Moreover, rural migrants also have limited access to social insurance and other forms of welfare (Zhu, 2003).

At the same time, rural migrants in China have lower average incomes along with lower human capital returns in the labor market (Knigh et al., 2010, Meng and Bai, 2007, Yan, 2007). Such inequality derived from social identity is termed “horizontal inequality” and is a type of between-group inequality (BI hereafter).³ It is also considered as a more influential element than “vertical inequality” (e.g., the Gini income coefficient) in determining social conflict and long-term growth (Acemoglu and Robinson, 2006, Stewart, 2002, Stewart et al., 2005, Stewart, 2007).

Because between-group inequality also widely exists across the world, this paper seeks to study how BI affects the happiness of urban residents and neighboring migrants in a Chinese context. In theory, while inequality may serve as an incentive in society, it is also considered unfair, particularly if people are institutionally constrained from becoming richer. There may be also some confusion in the literature. For instance, existing empirical work on the inequality–happiness relationship has not distinguished between identity-related inequality and general inequality. As a result, there are findings sometimes of both negative and positive effects of inequality on happiness.

Unlike these earlier studies, we measure between-group inequality as the ratio of household per capita income between urban residents and migrants. We find that happiness scores negatively correlate with hukou-identity-related inequality, irrespective of whether the residents are urban residents or rural migrants. However, when we control for BI and other individual, household, and city-level characteristics, inequality (as measured by city-level Gini coefficients) is positively associated with happiness. This finding implies that when studying the impact of inequality, we should distinguish between the income inequalities found in different social groups that are arguably more “unfair” than general inequality, which is relatively neutral.

An important question is also how people with different hukou status respond to between-group inequality. The response is crucial because it guides the welfare analysis of who exactly suffers from income inequality, as these persons are the potential proponents of institutional change for the redistribution of income (Acemoglu & Robinson, 2006). In the case of urban China, we identify three specific social groups in cities according to their hukou status. The first group is rural migrants without urban local hukou status. The second group comprises those who are born as urban residents, with urban hukou status granted at birth. The third group comprises those who have acquired urban residency and who have changed their hukou status from rural to urban at some point of time in the past (nongzhuanfei). As Deng and Gustafsson (2006) argue, acquired urban residents can be considered “permanent migrants.” We find that among urban residents with hukou, acquired urban residents are most unhappy with hukou-related inequality. This suggests that for these institutionally advantaged people, personal experience also forms identity. In contrast, rural-born persons display similar attitudes toward hukou-related inequality as do rural migrants, even if they have had urban hukou for some time.

The remainder of the paper is organized as follows. Section 2 reviews past studies on happiness, especially the empirical evidence concerning the inequality–happiness relationship. Section 3 describes the data and discusses the methodology used in our analysis. In Section 4, we employ regression analysis to investigate how BI affects people of different hukou identities and characteristics. The final section presents the conclusions and provides some policy implications.