Lin, "Changing role of the household as an income equalizer: An empirical study of Kuznets' hypothesis on the case of Taiwan," 1994

Ching-Yuan Lin, Ph.D.

Abstract (Summary)
This study analyzes the causes of rising income inequality in Taiwan since 1980. While individual income inequality has decreased, household income inequality has increased. As a result, for wage income at least, income inequality across households has exceeded that across individuals since 1984. The opposing trends of inequality at two different levels--individual and household--imply that the equalizing function of the household, through which income disparities among individuals are alleviated, has weakened continuously. Although income has become more evenly distributed across individual earners, earners themselves have become less equally distributed among households, both quantitatively and qualitatively.

Since wage income is the major factor undermining the equalizing mechanism of the household and raising inequality in household income, the cue to explaining the rising inequality in household total income lies in the causes of rising inequality in household wage income. If an individual's wage income is primarily determined by his human capital, as human capital theorists have argued, household wage income should be highly correlated to the stock of human capital endowed in the household, which is defined as the sum of human capital of each wage earner in the household. Thus, household wage income inequality can be explained by the distribution of human capital among households.

Through an inequality decomposition, I find that the contribution of human capital to household income inequality has risen continuously. In 1990, about 40% of household income inequality is attributable to the differences in quantity and quality of earners among households, which in turn is the joint outcome of rapid educational expansion and dissolution of traditional households.

The major contribution of this study is to provide a human capital framework for explaining Taiwan's rising household income inequality. Also, the causes of rising household income inequality are reconciled with declining individual income inequality by connecting long term changes in household composition with income inequality. In this respect, this study extends and reconciles Kuznets' demographic explanation for the declining income inequality in Taiwan during the 60's and 70's. (Copies available exclusively from Micrographics Department, Doheny Library, USC, Los Angeles, CA 90089-0182.)

Advisor: Nugent, Jeffrey B.