Cities 105 (2020) 102385

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Cities
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Towards inclusive urban development? New knowledge/creative economy T

and wage inequality in major Chinese cities
Cathy Yang Liua, Fox Zhiyong Hub, , Joowon Jeonga
⁎

a
Andrew Young School of Policy Studies, Georgia State University, 14 Marietta St. NW, Atlanta, GA 30303
b
Department of Asian and Policy Studies, The Education University of Hong Kong, 10 Lo Ping Road, New Territory, Hong Kong

ARTICLE INFO ABSTRACT

Keywords: Capitalist economic development and urbanization in recent decades has seen the rise of a knowledge-based
Knowledge-based economy economy and a widening income gap. Attempts to pursue a creativity-led urban development strategy amidst the
Creative sector ascent of a knowledge-based economy have led to the popularity of inclusive growth urban and regional policies.
Inequality However, policy acceptance of the concept of inclusive growth and its cognate variations appears to have run
Inclusive development
ahead of serious empirical substantiation of a growth-inclusion nexus. This paper contributes to the emerging
Chinese cities
literature on inclusive growth and urbanization through an investigation of the patterns and determinants of
industry-based wage inequality across 35 major cities in China during the period of 2003–2013. The empirical
analysis identifies a distinctive process of simultaneous tertiarization and industrialization that contributed to
the rise of wage inequalities in Chinese cities. It also reveals the significant role played by the Chinese state as
enterprise owner, public employment provider, and social welfare supplier, in ameliorating income inequality in
urban China. Our analysis draws attention to the contextualized nature of urban economic growth in order to
understand its implications for inequality/inclusiveness.

1. Introduction amenities in an attempt to capture mobile investment, tourism and

One of the most striking features that characterized capitalist eco-
nomic development and urbanization in recent decades is the rise of
high-technology industry, neoartisanal manufacturing, business and
financial services, cultural products industries, or what, in aggregate,
constitute a knowledge-based economy. These industries are considered
as the new dynamics of urban economy in the context of neoliberalism
and competitive global capitalism (Leslie & Rantisi, 2012). As argued by
Scott (2014), “we are now entering a period marked by a distinctive
third wave of urbanization based on cognitive-cultural capitalism, in
contradistinction to a first wave associated with the 19th century fac-
tory and workshop system and a second wave associated with 20th
century Fordism” (p. 570). While the defining nature and character-
istics of this new phase of capitalist urban development remain con-
troversial and contested, it is widely accepted that today's urban
economy is increasingly centered on “the cerebral and affective capa-
cities of the labor force” (Scott, 2014, p. 70). The recognition of cities as
the crucibles of creativity and innovation and the commanding centers
of knowledge-driven economy has pervasively shaped the policy
agenda of urban governments in both the global north and south to-
wards the provision of place-based relational assets and favorable urban
creative talent (Florida, 2002; Storper, 2013).
A disturbing trend concurrent with the rise of knowledge-based
economy in global capitalism is the widening income gap between the
rich and poor, the knowledgeable and uneducated, and the privileged
and disadvantaged, most noticeably in cities. Although the forces of
globalization and technological innovation continue to propel the
global economy forward, it is recognized that the benefits of urban
economic growth are not broadly shared among city residents (Greene,
Pendall, Scott, & Lei, 2016). In addition to being the drivers of global
economic growth, cities are also found to be the places where in-
equalities are starkest and where the social and political consequences
of inequality are most strongly felt. Concerns about urban inequality
have recently surged to the fore of public policy and popular debate,
leading to the publication of a series of high-profile consultancy reports,
policy agendas and academic works with the advocacy of ‘inclusive
cities’ (UN-Habitat, 2016), ‘all-in cities’ (Treuhaft, 2016), ‘open cities’
(Greene et al., 2016) or what is loosely termed inclusive growth
(Piketty, 2014; Summers & Balls, 2015; WEF, 2015; OECD, 2016;
Brophy, Weissbourd, & Beideman, 2017; Cavanaugh & Breau, 2017;
Pike, Lee, MacKinnon, Kempton, & Iddawela, 2017; World Bank, 2017;
Lee, 2018).

⁎
Corresponding author.
E-mail addresses: cyliu@gsu.edu (C.Y. Liu), zyhu@eduhk.hk (F.Z. Hu), Jjeong6@student.gsu.edu (J. Jeong).

https://doi.org/10.1016/j.cities.2019.06.016
Received 19 July 2018; Received in revised form 5 June 2019; Accepted 9 June 2019
Available online 27 June 2019
0264-2751/ © 2019 Elsevier Ltd. All rights reserved.
C.Y. Liu, et al.
To its advocates, the concept of inclusive growth represents “an
important, clever and overdue attempt to link economic development
to distribution” (Lee, 2018, p. 2). However, despite its claim to achieve
economies that leave no one behind, the quest for inclusive growth has
been criticized for being “conceptually fuzzy and operationally pro-
blematic” and “the evidence base on what works in making growth
inclusive is still weak” (Lee, 2018, p. 1 and 7). In view of the rise of a
knowledge-based economy in global urban development, questions are
being raised as to how the benefits of a new economy are distributed in
society. In other words, is it possible to reduce inequality while pro-
moting the development of knowledge-based or creative sectors in the
urban economy?
Discussion of inequality in the academic literature has often focused
on the national level. Only in recent years did scholarly analysis begin
to pay attention to inter-city or inter-regional variation in the dis-
tribution of earnings and to the potential causes of such differences
(Bolton & Breau, 2012; Breau, Kogler, & Bolton, 2014; Breau, 2015;
Donegan & Lowe, 2008; Florida & Mellander, 2016; Glaeser, Resseger,
& Tobio, 2009; Lee, Sissons, & Jones, 2016). However, most studies
concerning determinants of urban inequality are based on empirical
evidence in Canada, USA, UK and other western societies. With few
notable exceptions (e.g. Liu & Xie, 2013), little has been done to explore
the difference in inequality across cities in other contexts such as China
where the growth of knowledge-based economy is quite different from
its western counterparts and where the ongoing transition from plan to
market has left institutional legacies that continue to shape its evolving
pattern of inequality.
The unprecedented scale and pace of China's urban and economic
transformation serves as a useful case to examine the growth-inclusion
nexus. On the one hand, after decades of rapid industrialization driven
by the fast growth of export-oriented and labor-intensive industries as a
“world factory”, the Chinese economy encountered unprecedented
challenges since the early 2000s, characterized by increasing produc-
tion costs associated with the appreciation of RMB, inflation, upsurge of
raw materials, labor shortage and so on, all of which signaled the ex-
haustion of its low-cost production model (Yang, 2012; Zheng, Sun, Qi,
& Kahn, 2014). The urgency for economic upgrading felt by many
Chinese cities aspiring to move up the value chain of the global pro-
duction network has led them to embrace high value-added manu-
facturing and services as the solution to make the leap from ‘Made in
China’ to ‘innovated in China’ (Wei, Xie, & Zhang, 2017) or ‘created in
China’ (Keane, 2006). In parallel with such innovation/creativity-led
economic restructuring, China's urban development is arguably en-
tering its fourth wave in the new century characterized by tertiarization
and the rise of producer services (Yeh, Yang, & Wang, 2015).
On the other hand, China's fast economic growth is also accom-
panied by widening income inequality. While income inequality in
urban China has historically been low, its earnings Gini coefficient in-
creased considerably from around 0.23 in the late 1980s to around 0.37
in 2009 since economic reforms started (Meng, Shen, & Xue, 2013). By
international standards, China's urban Gini coefficient was moderate,
considerably lower than that for Latin America and the Caribbean (0.5)
and African countries (0.46), and slightly above that for Eastern Eur-
opean countries (0.32) (UN-Habitat, 2008). However, in view of the
ongoing accelerated urbanization process in China, the urban sector is
expected to play an increasingly important role in the evolution of
China's overall inequality (Li & Sicular, 2014). The ongoing post-in-
dustrial transformation of Chinese cities and the concurrent change in
China's urban income distribution has raised legitimate questions about
the nature and dynamics of the growth-inclusion nexus in the Chinese
context. Specifically, will China's recent economic reorientation to-
wards a more innovative and knowledge-based economy contribute to
the further increase of inequality in Chinese cities? This question re-
mains unanswered despite the impressive accumulation of literature on
the changing patterns of inequality in transitional urban China, which
until recently has been preoccupied with the macro-level institutional
2
Cities 105 (2020) 102385
transformation from a redistributive economy to a market economy.
Against the above research background, this paper is situated at the
interface of growing concern over inequality in the knowledge economy
and the burgeoning literature on the determinants of rising inequality
in urban China. It contributes to our understanding of the complex and
variegated forces that give rise to the uneven distribution of income in
urban China through an investigation of the spatial patterns of income
inequality in major Chinese cities in relation to China's proclaimed
transition towards a knowledge-based economy. Building on panel data
on industry-based wage inequality in 35 major cities in China during
the period of 2003–2013, this study assesses the social consequences of
knowledge economy development in the Chinese context, where the
trajectory of post-industrial economic transformation and the form and
extent of state involvement in the urban labor market are quite different
from their western counterparts. Both the new knowledge/creative
sector and the manufacturing sector are found to have positive impact
on urban wage inequality. The empirical analysis identifies a distinctive
process of simultaneous tertiarization and industrialization con-
tributing to the rise of wage inequalities in Chinese cities. It also reveals
the important role that the multiple facets of the Chinese state play in
ameliorating income inequality in urban China as an enterprise owner,
public employment provider and social welfare supplier. These findings
call for greater policy attention to the contextualized and contingent
nature of urban economic growth in order to better understand its
implications for inequality/inclusiveness.
The rest of this paper is organized as follows. We begin by providing
a critical review of the extant literature on the distributional con-
sequences of the rise of a new knowledge/creative economy and ex-
isting explanations about the rise of earnings inequality in urban China.
It is followed by a discussion of data and methodological issues. After
describing the changing pattern of wage inequality in Chinese cities
during the study period, we present results of a series of regression
models to illustrate the determinants of inequality in urban China. The
final section concludes with policy implications.
2. Growing inequality in knowledge-based urban economy
Growing urban inequality has been identified as a major economic
development challenge of the 21st century. Such challenge is more
acute in cities experiencing fast-forward transition into a knowledge-
based economy, as the most economically successful cities are often the
most unequal (Donegan & Lowe, 2008; Glaeser et al., 2009; Lee et al.,
2016) in terms of “the gap between the creative class and the wider
citizenry, the stratification within the creative labor market and the
precarious conditions facing even some of the core members of the
creative class” (Ren & Sun, 2012, p. 507). The increased political and
social concerns associated with inequality, as reflected in the recent
backlash against globalization and the rising tide of populism and in-
sularity, has generated an expansive body of literature on urban income
inequality. While some argue that increasing income inequality is an
unpleasant but unavoidable by-product of the shift towards a knowl-
edge-intensive economy that cannot be curbed until more individuals
become innovative and creative, others contend that there are some
other factors and forces at play to mitigate the deepening trend of
earnings inequality (Donegan & Lowe, 2008). Theoretical debates and
controversies over the determinants of urban inequality have been
framed in three different perspectives, each with its own angle and
focus (Bolton & Breau, 2012; Donegan & Lowe, 2008).
The first perspective links inequality to the structure of labor mar-
kets and employment opportunities in post-industrial cities. According
to the de-industrialization hypothesis, globalization, advancement in
transportation and telecommunication technologies, as well as the
emergence of low-cost production sites in developing countries, led to a
new international division of labor in which full-time, middle-wage jobs
associated with Fordist manufacturing firms in advanced western
countries were relocated elsewhere, leading to the erosion of jobs and
C.Y. Liu, et al.
employment security around what was once the core of urban income
distribution (Bluestone & Harrison, 1982; Doussard, Peck, & Theodore,
2009). The “disappearing middle” phenomenon left in its wake a po-
larized job and occupation hierarchy in the urban labor market in
which an expansion of a high-income stratum of transitional capitalist
class coexisted with the growth of a low-wage service underclass
(Sassen, 2001).
In a related manner, the second perspective ascribes rising in-
equality to skilled-biased technological change (SBTC) in knowledge-
based urban economy. For the proponents of this perspective, the forms
of production and work associated with the new knowledge/creative
economy tend to disproportionately increase demand and reward for,
high-skilled labor, including professionals, managers, scientists, tech-
nicians, designers, artists, and skilled craft workers at the relative ex-
pense of low-skilled workers (Acemoglu, 2002; Card & DiNardo, 2002).
The wage premium for workers' skills ensures that the salaries of skilled
and educated workers rose more dramatically than their less skilled
counterparts. As knowledge-intensive sectors are more likely to hire
high-skilled labor, such skills premium would likely increase industry-
based income inequality.
The third perspective focuses on the role of institutional mechan-
isms related to the change of wage structure in post-industrial cities.
According to this perspective, the institutions that had previously
worked to mediate rising levels of inequality, such as progressive tax
policies, powerful labor unions, minimum wage and other pro-labor
legislation, have been weakened, leaving workers to weather the ad-
verse effects of global forces on their own (Card, 2001; Donegan &
Lowe, 2008; Lemieux, 2008). The retreat of these labor market in-
stitutions tends to display a more significant effect on the bottom end of
income distribution in cities.
In summary, what has been described for advanced western coun-
tries is generally a process in which “the economic and institutional
restructuring of cities—characterized by a declining manufacturing
sector, weakening labor market institutions, and a never-ending supply
of less-educated immigrant workers—has essentially allowed highly
paid professionals, mostly in knowledge-based economies, to live in a
service paradise fueled by low-wage labor” (Donegan & Lowe, 2008, p.
58, italics added). While significant insights have been gained about the
structural and institutional determinants of urban inequality in Eur-
opean and North American countries, it remains unknown to what
extent and in what manner the reviewed factors can help explain the
patterns of wage inequality in Chinese cities. Given that the pattern and
trajectory of economic and institutional restructuring of Chinese cities
is different from its western counterparts, can we expect to identify a
similar pattern of relationship between knowledge economy develop-
ment and income inequality in urban China?
3. Rising income inequality in post-socialist urban China
The rise of income inequality in the course of China's post-socialist
transition has been a well-established topic among China specialists and
social scientists at large (Li & Sicular, 2014; Wu, 2019; Xie & Zhou,
2014). Early scholarly attempts to interrogate the determinants of in-
equality in urban China have been preoccupied with the debates and
controversies around Victor Nee's (1989) market transition hypothesis.
While some posited that market mechanisms will gradually replace
administrative fiat and political power as drivers of social inequality, in
contrast some others contended that the power associated with political
elites has persisted during the market transition (Bian & Logan, 1996;
Nee, 1989; Zhou, 2000). Successive empirical studies were conducted
to test the relative importance of political capital and cadre/official
status vs. human capital and educational attainment in affecting
earning inequality among individuals as China moves from a redis-
tributive to a market economy.
Moving beyond the antithetical framework of the market vs. the
state, scholars calling for substantive institutional analysis have in
3
Cities 105 (2020) 102385
recent years paid growing attention to the household registration
system, and the ownership characteristics of work units with which
workers are affiliated, as important elements of socialist institutional
legacies that continue to shape the segmentation of social groups in the
urban labor market, and their earnings differences in post-socialist
China (Xu et al., 2018; Wu, 2019). On the one hand, it has been well-
documented that despite the growing contribution of rural migrants to
the economic boom in urban China, the lack of local urban hukou status
continues to impose severe disadvantages on the occupational choice
and wage compensation of rural migrants in the urban labor market,
leading to earnings inequality between rural migrants and urban hukou
workers (Fan, 2002; Zhang & Wu, 2017). On the other hand, Chinese-
style privatization has not wiped out the existence of state ownership in
urban economic sectors. The lingering presence of state ownership in
China's transitional urban economy is believed to foster a highly com-
pressed earnings distribution among workers in the state sector, con-
sequently moderating the inequality-enhancing effect of Chinese pri-
vatization (Appleton, Song, & Xia, 2014).
While existing studies have given significant insight into the tran-
sitional nature of income inequality determinants in urban China, very
little has been said about the unequal distribution of income in the
context of China's new initiative to encourage creativity and innovation
in its urban economy. Since Chinese cities are confronted with the
double challenges of institutional transition from plan to market and
structural transformation from industrial to post-industrial economies,
the nexus between knowledge economy development and income in-
equality in the Chinese context is likely to differ from its western
counterpart in the following three ways. Firstly, the extant literature on
the distributional consequence of knowledge economy development in
the western context is often built upon the assumption that low- or
semi-skilled, blue-collar jobs in the manufacturing sectors were out-
competed and priced out of major urban centers in order to make room
for the accommodation of a highly skilled, highly paid labor force in
high value-added service sectors. This depiction of linear economic and
social transition is, however, at odds with the Chinese situation where
the manufacturing sector has remained an important provider of urban
employment. The availability of a large pool of migrants under China's
hukou system has incessantly fuelled its low-cost manufacturing sector
and has catapulted China onto a distinctive trajectory of simultaneous
tertiarization and industrialization (Lin, 2004). This feature of China's
knowledge economy development alongside the sustained growth of
the manufacturing sector distinguishes the Chinese experience from de-
industrialization and social change undergone in the western context.
Secondly, the nature of knowledge economy development in urban
China is found to be quite different from western countries (Criscuolo &
Martin, 2004; Florida, Mellander, & Qian, 2012). In a quantitative
analysis of China's development of a knowledge-based economy,
Florida et al. (2012) identified a significant but negative relationship
between human capital and high technology, which is not in line with
the empirical evidence from developed economies. Such a counter-
intuitive relationship led them to suggest that “those so-called high-tech
industries in China are primarily based on manufacturing, processing,
and assembling, rather than on innovation and services” (p. 639, italics
added) and that the Chinese model of transition into knowledge-based
economy “appears to be far less driven by the human capital or tech-
nology factors that propel more advanced economies” (p. 628). Dif-
ferent patterns of knowledge economy development often entail dif-
ferent distribution of worker skills, different degrees of labor mobility
and different forms of labor market institutions, which make it possible
to suspect that the impact of knowledge economy on inequality may
differ between Chinese and western cities.
Thirdly, unlike the situation in western economies where the state
serves mainly as the regulator of the urban labor market, the role of the
Chinese state in urban transformation is more pronounced and com-
plex, in that it can be both player and regulator. While local states in the
western context tend to regulate the urban labor market through labor
C.Y. Liu, et al. Cities 105 (2020) 102385

union formation and minimum wage legislation to mediate creativity/ Table 1

innovation and urban inequality, these institutional regulations don't Descriptive statistics of dependent and independent variables.
vary much across Chinese cities and their impact on urban income in- Variable Observations Mean Std. Dev. Min. Max.
equality is not significant in the Chinese context (Li & Sicular, 2014).
What is more relevant to the Chinese experience is urban governments' Coefficient of variation 377 0.18 0.07 0.05 0.38
Gini coefficient 377 0.16 0.03 0.07 0.24
attitudes or policies towards migrants and their ownership stake in the
Thiel's T (sectors) 377 0.02 0.01 0.00 0.06
urban economy that serve as intermediate forces linking urban in- Thiel's T (industries) 377 0.05 0.02 0.01 0.11
dividuals to the state and conferring unequal socioeconomic opportu- Creative sector 377 0.27 0.06 0.11 0.47
nities on workers in accordance with their structural positions in the Total employment (log) 377 4.47 0.77 2.82 6.90
Chinese transitional economy. Welfare 377 0.10 0.04 0.13 0.24
State-owned enterprises 377 0.43 0.21 0.06 0.89
These complexities thus suggest that the distributional impact of
Manufacturing 377 0.34 0.11 0.12 0.68
knowledge-based economy growth in Chinese cities may not be entirely Public sector 377 0.21 0.06 0.06 0.35
identical to what was reported in the extant literature and therefore Foreign direct investment 377 0.08 0.07 0.00 0.43
requires careful assessment.
Source: Author's calculation derived from statistical yearbooks of each city.
4. Data and research methodology
low skilled workers in knowledge intensive sectors and undercount
The questions to be investigated in this paper are: (1) What are the highly paid knowledge workers in less knowledge intensive industries.
wage inequality patterns across major cities and over time in China? (2) The ideal way to overcome this deficiency is to use employment and
How can the differences observed in urban wage distribution be ex- wage by occupation within different industries. Unfortunately these
plained? Is there any relationship between the growth of knowledge- kinds of data are only available in population censuses in selected years
based economic sectors and change in urban wage inequality? In order and access to the population census micro-database is not open to the
to answer these questions, we construct a panel data set over the period general research community. So we chose to use industrial-level
of 2003–2013 for 35 major cities in China. These 35 cities represent all average wage data in order to better reflect the temporal pattern of
municipalities directly under central government, provincial capital China's inter-city differences in wage inequality. Descriptive statistics
cities, and quasi-provincial capital cities in China. are shown in Table 1.
Previous studies on wage inequality in urban China are mainly In order to get a comprehensive view of wage distribution we adopt
based on survey data collected in a limited number of sampled cities or the following three indicators, namely Gini coefficient, Theil's T index,
on cross-sectional census data in a single year, which may not provide a and coefficient of variation. Specifically, Gini coefficient is calculated
broad picture of the level of wage inequality and its change over time as:
and across cities. To expand the time and space coverage of our re-
1 2
search, the primary data used in this paper for the analysis of income Gi = 1 + n
j = 1 (n j + 1)yij
n n2µi (1)
inequality are the average wage of on-post staff and workers (zaigang)
in major Chinese cities, which are readily available in China's statistical where yij is the average wage of industry j in each city i and μi is the
yearbooks for each city. The reported wage, according to the definition n
mean average wage of industries in city i which is specified as n j = 1 yij .
1
of the Chinese statistical authorities, refers to total remuneration pay- Theil's T index is calculated as:
ment including wages, salaries and other payments to the staff and
workers in urban units, which cover most types of ownership and ex- n
pij yij yij
clude urban private enterprises and individual businesses. Data on Ti = j=1 ln
pi ui ui (2)
employment and wages in urban units were collected annually by the
National Bureau of Statistics of China together with the Ministry of where j indexes the industry, pij is the employment of industry j in city i,
Human Resources and Social Security, while information on employ- pi is the total employment of all industries in city i, yij is the average
ment and wages in urban private and individual businesses were wage of industry j in city i, and ui is the average wage across all in-
gathered by the state administration for industry and commerce. dustries in city i.
Because urban private and individual businesses are large in number The Coefficient of variation is calculated as:
and subject to frequent change in operational conditions, official data
n
and information on employment and wages in these sectors tend to be x (y
j = 1 ij ij
qi )2
inaccurate and plagued by the problem of internal inconsistency and CVi =
qi (3)
missing values. For this reason, in this paper, we focus on the average
wage of workers in urban units. We select 2003 as the starting year for where yij and xij are the average wage and employment shares of in-
the concern of comparability as China revised its industrial classifica- dustry j in city i, respectively. And, qi is the employment weighted
tion system in 2002. Following Liu and Xie (2013), we exclude pri- average wage of city i.
marily rural industries, including agriculture, forestry, animal hus- In addition to Theil's T index for all one-digit industries, we also
bandry, fishing, and mining in our analysis in order to better capture classify employment in different industries into knowledge/creative
employment in urbanized areas. In the end, we include 17 industries for sector, working sector and other service sectors based on the char-
the calculation of wage inequality in each city. acteristics of each industry (Liu & Xie, 2013) and calculated Theil's T
The key variable in this paper is the measurement of wage in- index for these three groups of sectors. Knowledge-based economy,
equality in Chinese cities. Due to data availability, this study uses the according to Powell and Snellman (2004), refers to “production and
average wage of 17 one-digit industries for the calculation of wage services based on knowledge-intensive activities that contribute to an
inequality. Average wage here is the mean wage of individual workers accelerated pace of technical and scientific advance”. It is defined in
in different industries. It is known that industry is a large grouping of this paper in a broad way to include seven 1-digit sectors: financial
workers who may pursue occupations requiring different skill sets. intermediation, real estate, leasing and business services, education,
Therefore, using industrial-level average wage to measure wage in- culture, sports and entertainment, scientific research, technical services
equality may conceal great discrepancy in skill competences within and geological prospecting, information transmission, computer ser-
each industry. Taking the employment of knowledge economy sectors vices, and software. Detailed grouping of industries is provided in
as a whole to measure its strength in the urban economy may overcount Table 2.

4
C.Y. Liu, et al. Cities 105 (2020) 102385

Table 2
Employment and average wage by sector in China, 2003 and 2013.
2003 2013

Employment Wage Employment Wage

Number Share Annual Average (yuan) Number Share Annual Average (yuan)
(in 10,000) (%) (in 10,000) (%)

Creative sector 814 25.8 20,944.8 1584 26.1 70,937.6

Financial 96 3.0 28,302.5 189 3.1 125,019.9
Real Estate 62 2.0 16,664.2 209 3.4 50,672.5
Leasing 91 2.9 16,118.7 267 4.4 49,908.0
Scientific Research 122 3.9 21,451.8 223 3.7 74,651.0
Information 49 1.5 34,153.2 202 3.3 79,244.6
Culture, sports, entertainment 59 1.9 19,833.2 74 1.2 60,454.6
Education 336 10.6 19,473.8 420 6.9 63,929.9
Working sector 1813 57.5 14,548.7 3446 56.8 50,288.1
vManufacturing 1150 36.5 13,734.2 1990 32.8 48,919.5
Production and supply of electricity, gas, and water 69 2.2 23,921.0 101 1.7 78,074.3
Construction 345 11.0 13,409.5 956 15.8 44,595.9
Transportation, storage, and post 249 7.9 17,915.9 398 6.6 61,609.5
Service sector 525 16.7 15,222.5 1036 17.1 50,028.2
Wholesale and retail trade 223 7.1 14,006.7 520 8.6 47,039.6
Hotel and catering services 89 2.8 11,150.0 174 2.9 34,145.8
Management of public facilities 54 1.7 14,340.2 73 1.2 44,980.2
Services to households and other services 27 0.9 13,419.7 53 0.9 36,648.3
Health, social security, and social welfare 133 4.2 20,910.9 216 3.6 71,800.3
Total 3152 100.0 16,264.7 6066 100.0 55,248.7

Note: Data for the city of Ningbo and Wuhan were not available in 2003 and 2013, respectively. There were only 34 cities for the 2003 and 2013 samples. Average
annual wage was calculated by multiplying average wage and share of employees of each sector.
Source: Author's calculation derived from statistical yearbooks of each city.

We estimate an ordinary least square model that regress the three
inequality indicators as the dependent variable on the growth of
knowledge/creative sectors in a city while controlling for other in-
dependent variables. The model is expressed as:
Inequalityit = + Knowledge sectorit + X it +
i it
where i denotes city, t stands for year, and Xit is a series of ex-
planatory variables employed in this analysis. Knowledge sector is
measured as the percentage of the workforce employed in the knowl-
edge/creative sector in the urban economy. Building upon the above
literature review and following the practice of similar previous studies,
the following control variables are used:
• Employment: total number of employed persons in a city as a
measurement of city size. Previous research in both developed and
developing countries has documented a positive relationship be-
tween city size and income inequality (Baum-Snow & Pavan, 2013;
Chen, Liu, & Lu, 2018). Larger cities are expected to be more un-
equal than smaller ones.
• SOEs: the share of output value of state-owned enterprises in total
industrial output value in a city as a measurement of the degree of
marketization in urban economy. As mentioned before, earnings
inequality was generally lower in the state sector than in the private
sector in Chinese transitional economy. Cities dominated by a
higher share of state ownership are expected to display lower levels
of wage inequality. Since there is no data on all SOEs in different
cities, we use the strength of SOEs in the urban manufacturing sector
as the proxy variable to measure the extent of state ownership.
• Manufacturing: the share of manufacturing industry employment in
total urban employment. This control variable can test whether the
loss of middle-wage manufacturing jobs is one of the causes of rising
inequality in Chinese cities as observed for western cities.
• Public: the share of employment in public administration and social
organization in total urban employment as a measurement of gov-
ernment size. Public sector employment is defined here as mainly
consisting of civil servants and those providing service for the
government at various levels. Previous research has suggested that
the public sector may reduce inequality by offering middle-wage job
opportunities and compressing wage distribution (Lee et al., 2016).
In the Chinese context, the wage level of civil servants in the public
sector in a particular city has a benchmark effect on the wage-setting
practices of semi-public organizations in the same city, who are the
main service providers in those sectors, such as education, health-
care and social welfare, scientific research, polytechnic services and
geological prospecting, administration of water, environment and
public facilities and culture, sports and entertainment and so on. It is
thus expected that cities with more public sector employees display
lower levels of wage inequality.
• Foreign direct investment (FDI): the ratio of foreign direct invest-
ment to urban fixed assets investment as a measurement of the
openness of local economy. The extant literature on globalization
and global cities has suggested that globalization has a positive
impact on urban inequality (Timberlake et al., 2012; Wallace,
Gauchat, & Fullerton, 2011). Cities that are more globalized in terms
of the amount of foreign direct investment attracted are expected to
exhibit higher levels of wage inequality.
• Welfare: the share of fiscal expenditure on social welfare from total
urban fiscal expenditure as a measurement of urban governments'
commitment to social disadvantaged groups. Since there is no sys-
tematic and comparable data on labor union and pro-labor policies
across Chinese cities, we use local state expenditure on social wel-
fare as the proxy variable to indirectly measure the degree of local
governments' sympathy for migrants and other low-income earners.
5. Inter-city differences in wage inequality in urban China
Fig. 1 shows the temporal changes of industrial-based wage in-
equality across major Chinese cities during 2003–2013. All wage in-
equality indicators display a similar pattern of change characterized by
a rise in the early years after 2003, reaching a peak in 2009, before
declining thereafter. This pattern in urban wage inequality is quite
consistent with recent findings by Zhang and Wan (2017) whose ana-
lysis of urban household survey data reveals that inequality in urban

5
C.Y. Liu, et al. Cities 105 (2020) 102385

THEIL’S T INDEX COEFFICIENT OF VARIATION

0.08 0.25

0.06
0.20
0.04
0.15
0.02
0.10
0.00
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
0.05
Theil's T (three sectors)
0.00
Theil's T (all industries) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

GINI COEFFICIENT
0.20

0.15

0.10

0.05

0.00
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Fig. 1. Industrial-based Wage inequality in Major Chinese Cities, 2003–2013

Source: Author's calculation derived from statistical yearbooks of each city.

SHARE OF EMPLOYEES BY SECTOR, 2003-2013

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
CREATIVE WORKING SERVICE

Fig. 2. Employment Structure by Sectors in Major Chinese Cities, 2003–2013

Source: Author's calculation derived from statistical yearbooks of each city.

China no longer shows deterioration after 2008.
Such pattern appears to be coincident with the development trend
of knowledge-based economy in urban China. Fig. 2 displays the
changing share of employees of three sector groups in total urban
employment. We observe that the employment share of new knowl-
edge/creative sectors increased gradually since 2003 till 2009/2010
and then began to decrease. Meanwhile, the share of employment in
other service sectors, mostly low-end services, displayed a U-shape
trend, decreasing until 2008/2009 and starting to increase thereafter.
In other words, the development trend of the new knowledge/creative
sector differed before and after the global financial tsunami with non-
knowledge intensive industries absorbing more urban employment
after 2008. The similar temporal pattern in Figs. 1 and 2 seems to
suggest that the growth and change of the new knowledge/creative
sector is an important factor contributing to the evolution of wage in-
equality in urban China in the new century. Equally noteworthy is the
relative stability of manufacturing and the working sector in terms of
their employment shares in the urban labor force. In fact, during most
of the years under examination, the working sector accounted for over
half of total urban employment in major Chinese cities. This stable
temporal pattern confirms the observation that the Chinese economy is
not moving along a linear trajectory of transition from manufacturing

6
C.Y. Liu, et al. Cities 105 (2020) 102385

Table 3
Most and least unequal cities in China, 2003 and 2013.
Gini coefficient CV Theil's T (all industries) Theil's T (three sectors)

Rank City Index City Index City Index City Index

2003 Most unequal 1 Harbin 0.195 Guangzhou 0.204 Harbin 0.070 Harbin 0.042
2 Shenzhen 0.191 Harbin 0.195 Beijing 0.064 Beijing 0.034
3 Beijing 0.184 Shenzhen 0.191 Guangzhou 0.062 Xi'an 0.031
4 Haikou 0.180 Beijing 0.184 Shenzhen 0.061 Xiamen 0.029
5 Qingdao 0.176 Haikou 0.180 Haikou 0.055 Qingdao 0.027
Least unequal 31 Chongqing 0.100 Chongqing 0.100 Lanzhou 0.019 Urumqi 0.004
32 Dalian 0.099 Dalian 0.099 Tianjin 0.018 Nanchang 0.003
33 Kunming 0.090 Kunming 0.090 Shanghai 0.018 Tianjin 0.003
34 Shanghai 0.078 Shanghai 0.078 Kunming 0.016 Kunming 0.002
2013 Most unequal 1 Hangzhou 0.192 Hangzhou 0.192 Shenzhen 0.078 Ningbo 0.037
2 Beijing 0.189 Beijing 0.189 Beijing 0.071 Shenzhen 0.036
3 Ningbo 0.185 Ningbo 0.185 Shanghai 0.070 Hangzhou 0.031
4 Haikou 0.182 Haikou 0.182 Hangzhou 0.069 Beijing 0.028
5 Shenzhen 0.173 Shenzhen 0.173 Ningbo 0.069 Nanjing 0.024
Least unequal 31 Lanzhou 0.112 Lanzhou 0.112 Lanzhou 0.023 Hefei 0.004
32 Hefei 0.099 Hefei 0.099 Hohhot 0.022 Xining 0.003
33 Harbin 0.091 Harbin 0.091 Zhengzhou 0.019 Harbin 0.002
34 Zhengzhou 0.074 Zhengzhou 0.074 Harbin 0.017 Urumqi 0.002

Note: Data for the city of Ningbo and Wuhan were not available in 2003 and 2013, respectively. There were only 34 cities for the 2003 and 2013 samples.
Source: Author's calculation derived from statistical yearbooks of each city.

to high-end services as portrayed in the de-industrialization thesis, but
exhibits a distinctive pattern of simultaneous industrialization and
tertiarization (Lin, 2004).
Beneath the aggregate trend of temporal change lie significant inter-
city differences in wage inequality. Table 3 lists the five cities at the top
and bottom of the rank order on all four inequality indicators, while
Table 4 shows the temporal change of urban Gini coefficient for all
sampled cities during 2003–2013. Although the exact ranking of spe-
cific cities may vary across different indicators, the general pattern of
the spatial variation of urban inequality is quite consistent. When

Table 4
City ranking by Gini coefficient.
Source: Author's calculation derived from statistical yearbooks of each city.
Rank City 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003

1 Hangzhou 0.192 0.220 0.228 0.231 0.236 0.218 0.222 0.196 0.196 0.187 0.160
2 Beijing 0.189 0.195 0.199 0.207 0.212 0.214 0.198 0.204 0.203 0.194 0.184
3 Ningbo 0.185 0.188 0.198 0.224 0.244 0.234 0.234 0.231 0.236 0.197
4 Haikou 0.182 0.171 0.189 0.198 0.195 0.207 0.218 0.206 0.194 0.191 0.180
5 Shenzhen 0.173 0.191 0.205 0.219 0.231 0.230 0.226 0.201 0.204 0.196 0.191
6 Shanghai 0.172 0.178 0.188 0.225 0.215 0.220 0.200 0.199 0.139 0.070 0.078
7 Nanjing 0.162 0.177 0.182 0.180 0.182 0.172 0.154 0.156 0.156 0.130 0.108
8 Jinan 0.160 0.162 0.176 0.184 0.185 0.166 0.153 0.150 0.160 0.151 0.154
9 Yinchuan 0.157 0.151 0.170 0.168 0.172 0.181 0.185 0.190 0.166 0.123 0.130
10 Kunming 0.156 0.165 0.176 0.170 0.187 0.164 0.162 0.149 0.144 0.125 0.090
11 Xiamen 0.156 0.154 0.177 0.189 0.207 0.186 0.190 0.180 0.183 0.165 0.158
12 Changsha 0.149 0.144 0.142 0.146 0.144 0.146 0.173 0.166 0.162 0.163 0.157
13 Nanchang 0.148 0.123 0.131 0.125 0.141 0.159 0.153 0.148 0.134 0.117 0.117
14 Shijiazhuang 0.147 0.167 0.168 0.173 0.182 0.181 0.181 0.158 0.151 0.128 0.122
15 Guangzhou 0.147 0.179 0.190 0.190 0.197 0.207 0.210 0.209 0.200 0.212 0.204
16 Dalian 0.143 0.148 0.148 0.157 0.152 0.152 0.137 0.127 0.138 0.115 0.099
17 Qingdao 0.143 0.155 0.157 0.161 0.185 0.173 0.178 0.179 0.198 0.178 0.176
18 Chengdu 0.140 0.171 0.167 0.180 0.184 0.178 0.185 0.167 0.176 0.167 0.147
19 Shenyang 0.137 0.125 0.140 0.151 0.163 0.154 0.155 0.136 0.145 0.147 0.136
20 Xi'an 0.136 0.138 0.168 0.193 0.183 0.217 0.204 0.165 0.160 0.155 0.167
21 Tianjin 0.135 0.145 0.152 0.182 0.181 0.161 0.142 0.142 0.127 0.111 0.100
22 Guiyang 0.129 0.127 0.121 0.136 0.122 0.152 0.161 0.124 0.130 0.122 0.110
23 Urumqi 0.125 0.127 0.124 0.123 0.149 0.146 0.142 0.129 0.146 0.144 0.129
24 Nanning 0.124 0.164 0.183 0.202 0.200 0.207 0.191 0.158 0.147 0.150 0.140
25 Taiyuan 0.123 0.144 0.140 0.148 0.135 0.132 0.144 0.123 0.121 0.130 0.132
26 Fuzhou 0.123 0.118 0.138 0.177 0.183 0.175 0.174 0.159 0.154 0.140 0.132
27 Changchun 0.122 0.121 0.129 0.128 0.108 0.099 0.111 0.087 0.103 0.135 0.112
28 Xining 0.118 0.110 0.125 0.130 0.151 0.150 0.143 0.133 0.130 0.149 0.146
29 Chongqing 0.115 0.144 0.135 0.131 0.135 0.136 0.123 0.115 0.113 0.102 0.100
30 Hohhot 0.114 0.106 0.135 0.160 0.174 0.198 0.198 0.220 0.215 0.197 0.168
31 Lanzhou 0.112 0.115 0.115 0.126 0.169 0.157 0.153 0.151 0.150 0.125 0.107
32 Hefei 0.099 0.095 0.082 0.124 0.129 0.144 0.140 0.123 0.130 0.115 0.128
33 Haerbin 0.091 0.107 0.113 0.126 0.121 0.132 0.143 0.133 0.140 0.187 0.195
34 Zhengzhou 0.074 0.102 0.110 0.129 0.141 0.141 0.159 0.130 0.123 0.119 0.124
35 Wuhan 0.170 0.175 0.143 0.138 0.142 0.172

Note: Data for the city of Ningbo and Wuhan were not available in 2003 and 2009–2013, respectively. Cities are ranked by 2013 Gini coefficient.

7
C.Y. Liu, et al.
looking at the top five most unequal cities in 2003, the appearance of
coastal cities such as Beijing, Shenzhen, Guangzhou, Xiamen, Haikou
and Qingdao is not surprising since these cities are known for being at a
higher economic development stage and for having a concentration of
knowledge-intensive service sectors. It is quite unexpected, however, to
identify the presence of Harbin, the capital city of Heilongjiang pro-
vince in Northeast China, in the top 5 most unequal cities in 2003.
Harbin is known as the traditional heavy industrial base in China with
state-owned enterprises (SOEs) playing a dominant role in the urban
economy. Similar to other old industrial areas, the city of Harbin ex-
perienced a painful process of SOEs reform and labor retrenchment in
the late 1990s and early 2000s. The high level of wage inequality in this
post-socialist city in 2003 may reflect the effect of short-term shock
from ownership restructuring.
The spatial pattern became more clear-cut in 2013 when almost all
top 5 most unequal cities are large coastal cities. In particular,
Hangzhou, Shenzhen and Beijing are believed to be China's innovative
hubs, capturing the lion's share of innovative resources and outputs in
urban China (Rodriguez-Pose & Wilkie, 2016). Their high levels of wage
inequality seem to imply that the most innovative cities in China are
also the most unequal. In contrast, almost all the least unequal cities in
2013 are located in central and western provinces.
In order to explore the relationship between urban economic growth
and wage inequality change, Fig. 3 maps out the annual growth rate of
urban employment and the annual change of wage inequality for each
city during the years of 2003–2013 and assigns major Chinese cities to
one of four quadrants. It is evident that most of the cities are positioned
in the quadrant with both a higher annual urban employment growth
rate and a higher rate of wage inequality increase. These patterns de-
monstrate a generally negative relationship between growth and in-
clusion in China, before controlling for relevant variables.
To further understand the inter-city variation in wage inequality
and its determinants, four sets of regression models utilizing different
inequality measures are estimated and the results are reported in
Table 5. In each set of regressions, we estimate two models. One
Fig. 3. Annual Growth of Urban Employment and Annual Change of Wage Inequality by Major Chinese Cities, 2003–2013.
8
Cities 105 (2020) 102385
controls for any year-specific fixed effects and the other does not. The
results from these eight models tell a relatively consistent story, though
the magnitude of effects varies across different models. As a robustness
check, we also estimated models with one-year lagged independent
variables, and while the magnitude of coefficients changed slightly,
results are quite consistent. Firstly, being consistent with theoretical
argument that the growth and expansion of the new knowledge/crea-
tive sector has a significant and positive effect on industrial-based wage
inequality, Chinese cities with a higher share of employment in
knowledge-intensive sectors are more likely to exhibit a higher level of
wage inequality, no matter which dependent variable is used. Specifi-
cally, a 1% increase in the share of knowledge-intensive sector em-
ployment increases coefficient of variation by 0.274 and Gini index by
0.171, which suggests that the dispersion of wage around its average
grows as cities have a higher share of employment in knowledge-in-
tensive sectors. Also, the results show that there are significant differ-
ences among subgroups: a 1% increase in the share of knowledge-in-
tensive sector employment increases cross-sector Theil's T by 0.048, and
cross-industry Theil's T by 0.119. It suggests that wage inequality across
industries is larger than that across sectors. This is also understandable
by looking at the relative average wage levels of major knowledge-in-
tensive sectors, which shows that except for the sectors of real estate
and public management, in a few years most of the new knowledge/
creative sectors paid wages to their employees at levels higher than the
national average (Table 2).
Secondly, the impact of manufacturing employment on urban wage
inequality is positive and significant in Models 1, 2, 5, and 6. The results
suggest that as the share of manufacturing employment increases by
1%, coefficient of variation and sector Theil's T increase by 0.153 and
0.025 respectively, controlling for all other variables and year-fixed
effects. This is quite contrary to the findings in the European and North
American context. In the Chinese case, cities with a higher share of
manufacturing employment are found to have higher wage inequality.
This is confirmed by a simple calculation of the ratio of the average
wage of the manufacturing sector to the average wage of all sectors. As
C.Y. Liu, et al. Cities 105 (2020) 102385

Table 5
Regression results of wage inequality in major Chinese cities, 2003–2013.
Variables Coefficient of Variation Gini Coefficient Thiel's T (Sectors) Thiel's T (Industries)

Model 1 Model 2 Model 3 Model 4 Model 5 Model 6 Model 7 Model 8

Knowledge/Creative Sector 0.318⁎⁎⁎

0.274 ⁎⁎⁎
0.217 ⁎⁎⁎
0.171 ⁎⁎⁎
0.057⁎⁎⁎
0.048 ⁎⁎⁎
0.145⁎⁎⁎
0.119⁎⁎⁎
(0.077) (0.075) (0.038) (0.034) (0.014) (0.014) (0.022) (0.019)
Total Employment 0.007⁎ 0.008⁎⁎ −0.002 −0.001 0.001⁎ 0.002⁎⁎ −0.000 −0.000
(0.004) (0.004) (0.002) (0.002) (0.001) (0.001) (0.001) (0.001)
Welfare −0.159⁎⁎ −0.240⁎⁎⁎ −0.099⁎⁎⁎ −0.188⁎⁎⁎ −0.034⁎⁎ −0.051⁎⁎⁎ −0.058⁎⁎⁎ −0.120⁎⁎⁎
(0.072) (0.080) (0.037) (0.038) (0.013) (0.014) (0.021) (0.023)
State-owned enterprises −0.116⁎⁎⁎ −0.118⁎⁎⁎ −0.055⁎⁎⁎ −0.050⁎⁎⁎ −0.018⁎⁎⁎ −0.018⁎⁎⁎ −0.034⁎⁎⁎ −0.028⁎⁎⁎
(0.015) (0.015) (0.008) (0.008) (0.003) (0.003) (0.004) (0.004)
Manufacturing 0.208⁎⁎⁎ 0.153⁎⁎⁎ 0.021 −0.025 0.035⁎⁎⁎ 0.025⁎⁎⁎ 0.009 −0.013
(0.043) (0.043) (0.023) (0.022) (0.008) (0.008) (0.013) (0.012)
Public sector −0.264⁎⁎⁎ −0.330⁎⁎⁎ −0.204⁎⁎⁎ −0.243⁎⁎⁎ −0.050⁎⁎⁎ −0.062⁎⁎⁎ −0.161⁎⁎⁎ −0.173⁎⁎⁎
(0.062) (0.065) (0.034) (0.032) (0.011) (0.012) (0.020) (0.019)
Foreign direct investment 0.005 −0.011 0.052 0.062⁎ −0.000 −0.002 0.018 0.034⁎⁎
(0.053) (0.057) (0.034) (0.032) (0.009) (0.010) (0.017) (0.016)
Intercept 0.120⁎⁎⁎ 0.164⁎⁎⁎ 0.177⁎⁎⁎ 0.199⁎⁎⁎ 0.008 0.016⁎⁎ 0.064⁎⁎⁎ 0.071⁎⁎⁎
(0.041) (0.043) (0.023) (0.022) (0.007) (0.008) (0.013) (0.012)
Year-fixed effect N Y N Y N Y N Y
Observations 377 377 377 377 377 377 377 377
R-squared 0.419 0.469 0.283 0.454 0.377 0.435 0.343 0.494

Note: Robust standard errors in parentheses.

⁎⁎⁎
p < 0.01.
⁎⁎
p < 0.05.
⁎
p < 0.1.

is shown in Table 2, during the years of 2003 and 2013, an average
worker in the manufacturing sector earned consistently lower than the
national average. This tends to suggest that the manufacturing sector is
mainly a provider of low-paid jobs in the Chinese urban economy, and
manufacturing workers in urban China are far from middle-wage
earners as are their western counterparts. As a result, high and growing
levels of income inequality in urban China are not brought about by the
hollowing out of the manufacturing sector, but rather attributable to its
low-end, low value-added status in the global production network that
continues to compete on the basis of cheap labor costs.
Thirdly, three independent variables, namely the share of state-
owned enterprises in urban industrial output, the size of the public
sector, and the share of social welfare expenditure in total urban fiscal
expenditure, display significantly negative effects on wage inequality.
The finding that cities with industrial economies dominated by SOEs
are likely to have lower levels of wage inequality is consistent with the
finding reported by Liu and Xie (2013). This is reflective of the fact that
in transitional China non-state owned enterprises tend to adopt more
flexible pay schemes to reward their workers than SOEs do, leading to
larger pay differentials in sectors dominated by non-state owned en-
terprises than those dominated by SOEs.
The negative association between high public sector employment
and a lower level of wage inequality is similar to the finding reported
for the UK (Lee et al., 2016). In China, wage-setting mechanisms differ
between the public service sector and other economic sectors. The
wages of civil servants and tenured employees of not-for-profit public
service units are closely related to the fiscal capacity of local govern-
ments, and wage distribution among public agencies tends to be more
compressed than in other economic sectors (Liu, Xu, Shen, & Wang,
2017).
The regression result that urban fiscal expenditure on social welfare
has the effect of narrowing urban wage inequality is an interesting one.
Existing studies have identified a phenomenon of expenditure bias in
that careerist urban government officials in China are more willing to
spend their controlled fiscal resources on urban infrastructure and other
productive investments that can bring about sustained economic
growth rather than on revenue-depleting public goods and services such
as education, healthcare and social welfare (Han & Kung, 2015; Su &
Tao, 2017). A higher share of urban fiscal expenditure for social
welfare, therefore, denotes urban governments' commitment to the
well-being of socially disadvantaged groups. The results in Table 5 thus
imply that cities with more fiscal resources devoted to social welfare
tend to have a higher level of urban inclusiveness towards urban low-
wage residents and are more likely to roll out pro-labor policies and
regulations to combat wage inequality. These three variables are all
related in one way or another to the Chinese state. The consistently
negative values for these three variables demonstrate that the state,
through its strong presence in urban economy and society, remains an
important shaper and stabilizer of income distribution in the Chinese
transitional economy.
Finally, the impact of urban employment on wage inequality is
significantly positive, which confirms the above finding that in China
large cities are more unequal in wage distribution than their smaller
counterparts. This finding is also consistent with those reported in ex-
isting studies in western countries (Baum-Snow & Pavan, 2013; Korpi,
2008; Lee et al., 2016).
6. Conclusions and policy implications
Two concurrent processes characterize recent economic develop-
ment in the capitalist urban world: transition into a knowledge-based
economy and growing income inequality. While it is commonly re-
cognized by urban governments in both the global north and south that
fostering the development of the new knowledge/creative sector is pi-
votal to consolidate and upgrade their positions in the global urban
hierarchy, urban policymakers are equally concerned with the scale and
persistence of inequality that will, if left unchecked, have harmful
consequences for social cohesion and political stability. The pursuit of
reconciling growth with equity has led to the popularity of inclusive
development in urban and regional policy (Lee, 2018). However, po-
pularization of an inclusive growth concept and its cognate variations
calls for empirical evidence on what works (or does not work) in
making urban growth inclusive. This paper examines the relationship
between urban growth and inclusion in the context of the rise of China's
knowledge economy. Based on a panel of data on industry-based wage
inequality in 35 major cities during the period of 2003–2013, we test
the association between the growth of knowledge-based economic
sectors and change in urban wage inequality in China. The analysis

9
C.Y. Liu, et al.
identified considerable inter-city differences in wage inequality. Geo-
graphically, most of the cities along the eastern coast exhibited a level
of wage inequality which was higher than their inland counterparts.
Further statistical evidence lends support to the argument that the
rise of a knowledge-based economy will bring about greater income
inequality in urban China. Unlike the findings in the west, manu-
facturing employment has significantly positive impact on China's
urban wage inequality. Larger cities tend to have a higher level of wage
inequality. By contrast, the strength of SOEs, the size of the public
sector and the level of social welfare expenditure by urban governments
all have the effect of narrowing the wage gap. Rather than a full re-
plication of what was observed in the west, our analysis of the growth-
inclusion nexus in the Chinese context demonstrates a pattern and
process embedded in China's transitional institution and hybrid
economy.
This study has theoretical implications for the emerging literature
on inclusive urbanization in China. To date, most of the discussions on
social-spatial exclusion/inclusion have focused overwhelmingly on the
plight of migrants as a result of their lack of local urban hukou status
(Zhu & Tian, 2017). Relatively little attention has been paid to other
socially excluded groups such as laid-off/retired SOEs workers and
other urban low-income residents who may experience other forms and
processes of exclusion. The empirical finding of this paper that the
promotion of knowledge-based economic sectors may enlarge urban
wage inequality points to the importance of structural change and in-
dustrial upgrading as a possible mechanism to exclude an abundant
low-skilled labor force in urban China. It echoes the recent call by
McGranahan, Schensul, and Singh (2016) that studies of urban inclu-
sion should move beyond a focus on identity-based disadvantage (e.g.
hukou) to probe further into disadvantages that arise from the structure
of society and/or the economy.
This research also has important policy implications. In the existing
literature on income inequality in advanced western economies, the
decline and hollowing-out of middle-wage manufacturing employment
is often blamed for being a major factor leading to the rise of urban
inequality. Following this rationale, it is therefore suggested that
“bringing manufacturing back” or programs designed to promote job
growth in manufacturing industries could help to curb the rise in in-
equality (Bolton & Breau, 2012). This policy suggestion, however, may
not be effective in the Chinese context. The empirical analysis in this
paper identifies a distinctive process of simultaneous tertiarization and
industrialization in Chinese cities in which the expansion of both the
new knowledge/creative sector and the manufacturing sector con-
tribute to the rise of wage inequalities. Obviously, what matters for
addressing income inequality in Chinese cities is not the quantitative
change of jobs in the manufacturing sector, but more importantly the
qualitative change of job quality in terms of better jobs with higher pay.
While the relationship between the knowledge-based economy and
income inequality in China is not much different from what is observed
in the west, the determinants of urban wage inequality in China are
more complicated than their western counterparts, especially in terms
of the development trajectory of knowledge-intensive sectors and the
role of the state in the urban labor market. These distinctive features
together with China's new-type urbanization plan launched in 2014 will
coalesce to shape the future prospect of wage inequality in Chinese
cities. Building on the assumption that urbanization can reduce the
urban-rural income gap, China's 2014 new urbanization plan aims to
facilitate the integration and settlement of migrant workers in their host
cities by granting them urban hukou. Since most of the migrants are
mainly working in the urban low-wage manufacturing and service
sectors, the implementation of this policy initiative will transfer the
challenge of inequality from urban-rural divide to within-city wage gap
in the destination cities of migrants. Meanwhile, the same urbanization
plan has been accompanied by the advocating of the development of
mega cities in less developed central and western regions of the country
as a strategy to counteract the over-concentration of manufacturing
10
Cities 105 (2020) 102385
industries and migrants in coastal cities. These inland cities are less
marketized than their coastal counterparts and are expected to ex-
perience further ownership restructuring with labor reallocation from
the public to the private sector. It can be inferred from the findings of
this study that major inland cities hosting a growing share of manu-
facturing and knowledge-intensive sectors and undergoing diversity of
state ownership, are more likely to experience a considerable rise in
wage inequality. It is in these cities where the dual challenges related to
increasing income inequality, brought about by the rise of knowledge
economy and ownership restructuring, may be most severely felt and
where redistributive policies need to be in place to facilitate the pursuit
of inclusive growth in an increasingly innovative, creative and knowl-
edge-intensive economy.
This study is constrained by the unavailability of systematic data on
employment and wage by occupation within different industries at city
level. The conclusions of this study derived from the measurement of
industry-based wage inequality would benefit from future studies
looking to overcome these data limitations with more appropriate data
collected at finer levels of disaggregation. In order to help promote
inclusive urban development, more research is needed to use officially
released population census micro-database to test the robustness of our
results reported here.
Acknowledgements
The work described in this paper has been sponsored by the grant
obtained from the Research Grants Council of the Hong Kong Special
Administrative Region, China (ECS 28200615).
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