42 both rural and urban areas.<sup>77</sup> So have also the cuts in central government subsidies of basic consumer goods, such as food and clothing. However, in other respects the proximate sources behind the more uneven distribution differ between urban and rural areas.<sup>78</sup> According to the Academy, the increased _share_ of wage income in total income in rural areas has increased the dispersion of total income in these areas, because wage income is found to be less important for poor households than for other households. By contrast, changes in the _distribution_ of wage income are found to have been the dominant explanation for the increased dispersion of income in urban areas. One important factor behind the latter development seems to be the huge increase in the wage gap across skill groups<sup>79</sup> , reflecting an increased return on investment in human capital since the late 1980s (Zhang et al., 2005 **).** The softening of the _hukou_ system also helps explain the widening of the dispersion of wages in urban areas, since the supply of low-skilled labor thereby has been boosted in these areas. The rise in unemployment in urban areas – today unofficially often estimated at 8-11 percent<sup>80</sup> – has, of course, also contributed to widen the income gaps.

The distribution of _wealth_ is also rather uneven in China as compared to, for instance, other Asian countries (Nolan, 2004, Chapt. 1).<sup>81</sup> One plausible explanation is the absence of small and medium-sized private ownership of farmland.<sup>82</sup> Thus, although the egalitarian distribution of land-tenure contracts helped disperse the rapidly rising earnings in agriculture in connection with the agricultural reforms in the late 1970s and early 1980s, the absence of private ownership of land has delayed the emergence of a large middle class of wealth holders (if we do not include the capital value of tenure contracts in the definition of wealth). “Asset stripping” in connection with privatization, as well as various forms of corruption, have presumably also contributed to make the distribution of

> 77 Indeed, Benjamain et al. (2005) argues that the increase in rural inequality is largely a result of the emergence and increase in highly unequal earnings from family-run businesses.

> 78 According to UNDP (2005, pp. 27-31) the Gini coefficient of the distribution of household income increased from 0.22 to 0.37 in rural areas and from 0.17 to 0.34 in urban areas between 1978 and 2002.

> 79 According to Blanchard and Giavazzi (2005), the skilled-unskilled wage ratio has risen from 1.3 in 1994 to 2.1 in 2003.

> 80 The higher figure is found in a study by Giles et al. (2005), and the lower in, for instance, _The Economist_ , Sept. 11, 2004, p.55 (based on calculations by the National Bureau of Statistics in China, and Hu Angang, Tsinghua University).

> 81 According to McKinsey Global Institute (2006, Exhibit 3.18), less than 2 percent of the households accounted for more than 60 percent of liquid financial assets in 2003.

> 82 Of course, if the imputed capital value of land-lease contracts were included in household wealth, the distribution of wealth would seem more even. Indeed, with this definition of wealth, the Gini coefficient for the distribution of wealth would be only slightly above the Gini coefficient for income (UNDP, 2005, pp. 31-37, based on a study of household surveys by the Chinese Academy of Social Sciences, 2002).