Power as a Driving Force of Inequality in China: How Do Party Membership and Social Networks Affect Pay in Different Ownership Sectors?

Party membership and social networks, as two forms of nonmarket power, have significant effects on personal income and act as driving forces of inequality in China. Do the effects vary across different ownership sectors (suoyouzhi xingshi)? Using a nationally representative survey of urban households (China Household Income Project surveys in 1995 and 2002), we find that (i) party membership can significantly increase personal income, but this effect does not significantly differ between different ownership sectors or between the years 1995 and 2002 and (ii) social networks are insignificant in state-owned enterprises (SOEs), while they contribute significantly to personal income in non-SOE sectors. Our finding does not predict a smaller inequality through lower returns to power during privatization in Chinese economy. (JEL codes: J40, O15, P26, Z13) Copyright The Author 2009. Published by Oxford University Press on behalf of Ifo Institute for Economic Research, Munich. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.