Endnotes

¹In Mundell (1962), the terms of internal imbalance and external imbalance are used to refer to the disequilibrium condition in the domestic market and the savings-investment gap respectively. Here, we use internal imbalance to indicate the relatively slow growth in consumption that is partly because of the widening income inequality. Meanwhile, external imbalance is used in our article to refer to the expansion of international trade, especially net exports, which has resulted in remarkable growth in foreign exchange reserves, and constitutes a reason for the international imbalance between the PRC and the US.

²From the logic of our article, to be analyzed below, sustainable economic growth could be jeopardized by rising income inequality in two ways. First, on the demand side, rising income inequality could harm growth because of low domestic consumption demand under the law of diminishing marginal propensity of consumption. Secondly, from the perspective of supply side factors, Wan, Chen, and Lu (2006) find that inequality has a strong, and negative, impact on physical investment, while its influence on human capital is positive but weak. Therefore, the cumulative effect of income inequality on economic growth is negative, irrespective of whether the horizon is short-run or long-run.

³Li Shi (2008). It should be noted that the PRC experienced booming capital markets in 2007, so the estimated Gini coefficient could be abnormally high.

⁴This is consistent with the theory of dual economy (Lewis 1954), which predicts that a developing economy experiencing urbanization and industrialization has a phase of “unlimited labor supply” with limited wage growth.

⁵Yin said this and the following concerning the current employment situation at the press conference of the second session of the eleventh National People's Congress, March 10th, 2009.

⁶See China Daily, 11 Feb. 2009.

⁷According to the NBS data, the urban labor force increased by 11.13 million in 2008. This data could be found in the Statistical Communiqué of the People's Republic of China on the 2008 National Economic and Social Development, available at http://www.stats.gov.cn/english/newsandcomingevents/t20090226_402540784.htm.

⁸According to the NBS data, 2.61 million unemployed people received unemployment insurance from the government at the end of 2008.

⁹Such workers received layoff wages, which were below working wages yet higher than unemployment insurance. At the same time, laid-off workers still kept their social security relationship with their original workplace and, therefore, could obtain relatively better medical insurance compared to the unemployed.

¹⁰Urban paid employees refers to the number of staff and workers in the China Statistical Yearbook. It represents employment in the formal sector. However, there are also self-employed workers and employment in the informal sector in urban PRC. We use this ratio to indicate the share of formal employment in all employment, and a downward trend is revealed which could be seen as a trend of employment informalization.

¹¹In fact, the PRC's registered urban unemployment rate is criticized by researchers as an insufficient index. This index suffers from three problems. First, it is an index of the registered unemployment rate, which is different from the more internationally applied surveyed unemployment rate. Second, this index only takes into account officially registered urban residents, whereas the floating rural population who have migrated into the cities are ignored. Third, and most importantly, before the merging of the dual employment systems—state and private sectors—in 2000–2001, the unemployment rate index did not take into consideration “laid-offs”, who were actually unemployed, and whose number was at one time greater than the number of those unemployed. As a result, this index, without doubt, substantially underestimates the actual unemployment rate in urban PRC.

¹²Although there were other reasons leading to the declining labor force participation rate, Cai and Wang (2004) also pointed out that the decline was partly a result of the fact that some "frustrated workers" quit the labor market.

¹³Considering that the change of the exchange rate in 1994 was a unification of the dual-track exchange rates, the real size of the depreciation of the yuan was less than that shown in Figure 14.

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