Download Countermeasure Study on Controlling Unfair Primary Distribution

M & D FORUM
Countermeasure Study on Controlling Unfair Primary Distribution
XIAO Hongmei
School of Labor Economics, Capital University of Business and Economics, P.R.China,100026
[email protected]
：
Abstract Primary distribution is a society’s basic share. Both proportions of labor reward and resident
income in GDP distribution decline. Huge income gap is emerging among social members. The causes
of unfair primary distribution mainly include: The total wages growth rate (the average wage growth
rate) is lower than the economic growth rate (staffs' productivity growth rate), which leads to proportion
of labor reward in GDP declining. Monopoly industries get higher wages with the pegged economic
benefits to wages. Wage growth speed of lower position is slower than that of higher position. There is
huge income gap among staffs due to different forms of employment. Therefore, we should control the
unfair primary distribution as the following. Firstly, keep the total wages growth rate from exceeding the
economic growth rate, and keep the average wage growth rate from exceeding staffs' productivity
growth rate. Secondly, monopoly industries must determine their wages in consideration of competitive
industries' wages. Thirdly, we should improve wage adjustment measures to staffs of different status.
Finally, we must strictly implement “equal pay for equal work” policy.
Keywords Primary distribution, unfair income distribution, control, countermeasure
：
1 Introduction
Primary distribution refers to the distribution that the national income (GNP) is directly associated with
production factors among the government, enterprises and individuals. GNP is divided into three parts
through primary distribution: resident income in form of wage income; finance income in form of tax;
and operating earnings of enterprises in form of after-tax profits.
According to the report of the 17th national congress of the communist party of China, primary
distribution and second distribution should both properly deal with relationship between efficiency and
fairness. We must gradually increase the proportion of resident income in GDP distribution and also
gradually increase the proportion of labor reward in primary distribution.
Primary distribution in largely determines an ultimate income distribution pattern of a society. Once the
problems in primary distribution are delayed to the second distribution and even the third distribution to
solve, the costs of controlling unfair distribution will increase substantially [1]. Therefore, this paper
analyses the causes of the present unfair primary distribution, and puts forward some suggestions and
countermeasures.
，
2 A General Description of Unfair Primary Distribution
2.1 The decrease in both proportions of labor reward and resident income in GDP distribution
On the macroscopic level, national economy is usually divided into three departments from the angle of
statistics: residents department, government departments and Individual departments. Correspondingly,
the national income of primary distribution is divided into three parts: resident income, finance income
and operating earnings. This paper calculates the proportion of resident income in GDP distribution, the
proportion of finance income in GDP distribution, and the proportion of operating earnings in GDP
distribution from 1998 to 2008, according to China statistical yearbook compiled by National bureau of
the People's Republic of China, see Figure 2.1.
AS is shown in the figure, during these eleven years from 1998 to 2008, the proportions of resident
income in GDP decreased from 48.04% in 1998 to 41.42% in 2008, a decrease of 0.6 percentage points
annually on average. The general trend of the proportions of resident income in GDP declines yearly.
261
M & D FORUM
The proportions of finance income in GDP increase from 11.70% in 1998 to 19.53% in 2008, an
increase of 0.7 percentage points annually on average. The general trend of the proportions of finance
income in GDP is rising yearly. While, the trend of the proportions of resident income in GDP is
declines firstly then rising. The overall changes of these proportions are in the basic levels in 40%.
Figure 2.1 Proportions of resident income, finance income and operating earnings in GDP in China
(1998-2008)
60.00%
proportions
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
given year
proportions of resident income in GDP
proportions of finance income in GDP
proportions of operating earnings in GDP
Notes: 1. resident income = Per capita disposable income of urban households × amount of urban population +
annual per capita net income of rural ×amount of rural population.
2. the proportions of earnings in GDP=1 the proportions of resident income in GDP the proportions of operating
earnings in GDP.
－
－
It is obvious that the proportions of resident income in GDP declines yearly, which shows unfair
distribution of GDP among the nation, enterprises and individuals. The income distribution obviously
leaning to the government and enterprises leads to “Wealthy Country while Poor Civilian”.
Resident income can be roughly divided into labor reward transfer income, and property income.
Among of these, labor reward should be the main part of the most resident income. In current, statistics
caliber of labor reward is not uniform, so there is not yet a unified conclusion about the proportions of
labor reward in GDP.
ZHANG Jianguo, department director in Collective Contract Department from ACFTU (All China
Federation of Trade Unions), expressed the following view when he accepted interview by the website
of China Worker in May this year: the proportion of labor reward in GDP peaked in 56.5% in 1983,
continued to fall, and declined to 36.7% in 2005. The proportion of labor reward in GDP has fallen by
nearly 20 percentage points over the past 22 years from 1983 to 2005 [2].
The opinion that proportion of labor reward in GDP has fallen continuously over the past 22 years
from1983 to 2005 aroused general concern from society. “The proportion of labor reward in GDP is
underestimated in China”, said Jia Kang, director of the Institute for Fiscal Science Research, a
think-tank affiliated with the Finance Ministry. Recently, a study of the proportion of labor reward in
GDP from1993 to 2007 research on clear: The proportion of labor reward of residents department in
GDP decreased from 49.49% in 1993 to 39.73% in 2007, a decrease of 9.75 percentage points [3].
，
262
M & D FORUM
2.2 Huge income gap among social members
2.2.1 Unfair distribution among different industries
In 2008, the annual wage in securities industry is the highest, 172123Yuan, among all on-the-job
workers of all the industries. And the annual wage in Timber industry is the lowest, 15663Yuan. The
ratio of these two data reaches to 11: 1. However, at the beginning of China's reform and opening up,
this ratio was only 2.17:1, then reached 2.63:1 during the Nine - fifth Plan, and reached more than 5:1 in
2005 [4].
2.2.2 Unfair distribution among government departments, institutions, and enterprises
According to the data from the website of National Statistical Bureau on April 19 in 2009: annual wage
of government departments is the top 1, 33869Yuan which is 1.16 times of the national average level.
Annual wage of institutions is the second, 29758Yuan, 1.02 times of the national average. Annual wage
of enterprises is the lowest, 28359Yuan, 0.97 times of the national average. This situation which the
average wage of government departments, institutions are higher than the average national level have
not been changed for years.
2.2.3 Unfair distribution among different status of staff
For example, the wage of a labor-contract employee, a contract labor, or a service labor is lower than
that of a staff on the regular payroll.
2.2.4 Unfair distribution among different layers of the society
At the present time, our country's income distribution is a pyramid structure. The proportion of
low-income people and lower-middle income in the whole people is too larger. However, the proportion
of middle-income in the whole people is too smaller.
，
，
3 The Causes of Unfair Primary Distribution
3.1 “Two lower than” wage growth theory caused the proportions of labor reward in GDP to fall
For a long time, our wage increase policy has been dominated by “Two lower than” wage growth theory.
“Two lower than” wage growth theory includes two perspectives: the total wages growth rate is lower
than the economic growth rate, and the average wage growth rate is lower than staffs' productivity
growth rate. It leads the proportion of labor reward in GDP to decline. See the following explanation.
According to “Two lower than” wage growth theory, for example, the total wages growth rate (the
average wage growth rate) is 0.7% when the economic growth rate (the productivity growth rate) is 1%
yearly. As is shown in Table 3.1, the proportion of total wages in industrial added value will decreased
from 40% to 34.84% in only 5 years, a decrease of 1.0 percentage points annually on average.
Table 3.1
index
Industrial added value
added value growth
rate
the change of proportions of total wages in industrial added value
unit:10 000Yuan
Base year
First year
Second year
Third year
Fourth year
Fifth year
10 000
11 000
12 100
13 310
14 641
16 105.1
0%
10%
10%
10%
10%
10%
total wages
wage growth rate
4 000
0%
4 280
7%
4 579.6
7%
4 900.17
7%
5 243.18
7%
5 610.88
7%
proportion of wages in
added value
40%
38.91%
37.85%
36.81%
35.81%
34.84%
3.2 Monopoly industries get higher wages with the pegged economic benefits to wages
It is generally agreed that monopoly industries get higher wages and welfare due to their monopolies. In
fact, monopoly is just the basis. The root lies in monopoly industries' wages pegged with their economic
263
M & D FORUM
benefits. Otherwise, the economic efficiency of monopoly industries will not be transformed into high
income. China has monopoly industries all the time. Before 1985, monopoly industries' wages was
formulated by the state, not pegged to their economic benefits. At that time, monopoly industries' wages
were only in middle or lower position, such as banking and insurance industries.
3.3 Wage growth speed of lower positions is slower than that of higher positions
On the micro-level, wage growth speed of lower position is always obviously slower than that of higher
position [6]. It inevitably leads to the two consequences: the relative wage gap and absolute wage gap
will continue to expand; the absolute wage gap will continue to expand, but the relative wage gap
remains unchanged. Income gap is widening continuously beyond staffs' tolerance, and form unfair
distribution pattern.
3.4 Huge income gap among staffs due to different forms of employment
On the macroscopic level, as for the same labor productivity but different identity staffs, the state-owned
units often adopt different standards of wages. It is a kind of exploitation on personnel system
arrangement which permanent staffs invade and occupy the fruit of labor produced by t impermanent
staffs in public ownership conditions. This unfair distribution among staffs of different status has
widened the income gap.
4 Countermeasures to Unfair Distribution in Primary Distribution
4.1 Change“Two lower than” wage growth into“Two not exceeding” wage growth
In the 12th Five-year Plan, we must change “Two lower than” wage growth into “Two not exceeding”
wage growth. “Two not exceeding” means: keep the total wages growth rate from exceeding the
economic growth rate, and keep the average wage growth rate from exceeding staffs' productivity
growth rate. According to this principle, by the ratio of 1:1, the wages growth rate (the average wage
growth rate) is 0.7% when the economic growth rate (the productivity growth rate) is 1% yearly. It can
guarantee that GDP and wage growth rate remained coordinated.
It is especially pointed that “Two not exceeding” is not enough. Our wage growth needs “Two
moderately exceed” in the 12th Five-year Plan: the total wages growth rate moderately exceeds the
economic growth rate, and average wage growth rate moderately exceeds staffs' productivity growth rate.
For example, keep the situation like that the total wages growth rate is 1.1% or 1.2% when the economic
growth rate is 1% yearly. It is simple to understand, which can compensate the slow wage growth, and
also can make wage growth (below GDP growth ten percentage points) recover gradually. “Two
moderately exceed” policy applies to those staffs whose wages are low and increase very slowly.
4.2 Monopoly industries' wages consulting to competitive industries'
As an investor, the government must directly regulate the wage levels of monopoly enterprises.
Monopoly industries' wages must be formulated in consideration of that in competitive industries' to
ensure these two industries' wages roughly equal. See the following operating procedures:
The first step, survey average human capital coefficient and average wage of competitive industries. See
in Table 4.1.
Table 4.1 human capital coefficient according to job-based ranked wage
market wage Yuan/year
job grade
human capital coefficient
Class 1
13 200
1.0000
Class 2
15 000
1.1364
Class 3
19 000
1.4394
Class 4
24 000
1.8181
Class 5
36 000
2.7272
（
）
264
M & D FORUM
Class 6
54 000
4.0909
Class 7
76 000
5.7576
Class 8
105 000
7.9545
Class 9
138 000
10.4545
Class 10
180 000
13.6363
Notes: 1. Assume there are ten job grades. Figures in Column 2 are assumptions. Use survey data in practice.
2. Human capital coefficient of Class i = market wage of Class i / market wage of Class 1.
The average human capital coefficient of competitive industries=the total human capital coefficient of
competitive industries in the previous year/ number of staff of competitive industries in the previous
year.
In this formula, the total human capital coefficient=∑number of staff of Class i × human capital
coefficient of Class i.
Then we can use the following formula to calculate the average wage of competitive industries:
The average wage of competitive industries= total wages in the previous year/ average number of staff
in the previous year.
The second step, calculate average human capital coefficient of monopoly industries. First of all, we
should define clearly which belongs to the monopoly industries in sixteen kinds industries. Then we can
calculate average human capital coefficient of independent accounting unit among monopoly industries
by reference to the above method that we use in competitive industries.
The third step, determine average wage and total wages of monopoly enterprises:
(1) The average wage of a monopoly enterprise= average human capital coefficient of this unit ×
average wage of competitive industries in the previous year× wage increase rate.
In this formula, wage increase rate must implement the local wage guidelines.
(2) The total wage of a monopoly enterprise= the average wage × number of staff of this unit.
The last point to be emphasized is that we must determine average wage at first, then calculate total
wages of monopoly enterprises. Every independent accounting unit of monopoly enterprises can act on
its own about wage distribution within the limits of defined average wage and total wages.
4.3 Improve wage adjustment measure to staffs of different status
It is necessary to narrow the relative wage gap and moderately expand absolute wage gap among staffs
of different status. Correspondingly, wage adjustment principle is the following: high post personnel's
wage growth rate is lower than the average wage growth rate, and low post personnel's wage growth rate
is higher than the average wage growth rate. Wage adjustment could be done according to the following
steps: firstly, all the staffs' wages in different positions are increased an equal pays, such as 50
RMB/monthly or 100 RMB/monthly; secondly, all the staffs' in different positions are increased at the
same wage growth rate. Certainly the wage adjustment must implement the local wage guidelines.
Specific statistical wage adjustment measure can be seen in Table 4.2
Table 4.2 wage adjustment measure to staffs of different status
B position Yuan
A position Yuan
absolute wage gap
Yuan
Adjustment before
1 000
3 000
2 000
Increase 50Yuan
1 050
3 050
2 000
Increase 10%
1 150
3 350
2 200
（
）
（
）
（
）
relative wage gap
3.00:1
2.90:1
2.91:1
In this way, we can not only narrow the relative wage gap but also keep wage gap within staffs'
tolerance.
4.4 Strictly implement “equal pay for equal work” policy
265
M & D FORUM
The staffs may have different status and different forms of employment in the same company,
considering flexibility of employment. But we can't implement the “unequal pay for equal work”
because of different status. Cost reduction can't be the starting point of adopting different forms of
employment.
What is “equal pay for equal work” so-called, means the following: the employing unit should provide
unified wage system for all the staffs, whether permanent staffs or impermanent staffs, whether formal
employees or labor-contract employees, whether urban employees or peasant-workers. “Unequal pay for
equal work” is particularly universal in the state-owned enterprises and institutions. So it is a focal point
to carry out “equal pay for equal work” policy in the state-owned enterprises and institutions.
5 Conclusion
China is a country where the cities remain separate from villages and development is uneven among
regions. Since 1990s, the income distribution gap has begun to widen [8]. Income distribution is one of
the most serous social problems in China. This research mainly discusses the causes and
countermeasures to unfair primary distribution. Conclusions are as follows:
Firstly, both proportions of labor reward and resident income in GDP distribution decline. “Two lower
than” wage growth theory caused the proportions of labor reward in GDP to fall. In the 12th Five-year
Plan, we must change “Two lower than” wage growth into “Two not exceeding” wage growth. What's
more, “Two not exceeding” is not enough. Our wage growth need “Two moderately exceed” to recover
gradually, and to keep GDP and wage growth rate coordinated.
Secondly, monopoly industries get higher wages with the pegged economic benefits to wages. This is
not only the important factor of the formation of unreasonable income gap, but also the main
manifestation of unfair primary distribution. Monopoly industries' wages should be formulated
consulting to competitive industries'.
Thirdly, wage growth speed of lower position is always obviously slower than that of higher position.
Wage adjustment should be done according to the following steps: all the staffs' wages in different
positions are increased an equal pays; then, all the staffs' in different positions are increased at the same
wage growth rate.
Finally, “Unequal pay for equal work” is particularly universal in the state-owned enterprises and
institutions. So “Equal pay for equal work” policy should be strictly carried out.
：
Author in brief or Acknowledgment
XIAO Hongmei, Female, born in 1978, doctor candidate of labor economics, school of labor economics,
CUEB; Instructor, Beijing Vocational College of Labor and Social Security.
References
[1]. LI Daokui, HE Mengjie, LIU Linlin. The Dynamic labor share in Primary distribution. Economic
Theory and Business Management,2010(2)( in Chinese)
[2]. Caijingnet. The proportion of labor reward in GDP has fallen continuously over the past 22 years.
http://www.caijing.com.cn/2010-05-12/110437556.html( in Chinese)
[3]. Xinhuanet. The proportion of labor reward in GDP is underestimated in China
http://news.china.com/zh_cn/domestic/945/20100518/15939710.html ( in Chinese)
[4]. LIU Shiming, WANG Min, GUO Jing. Background, Innovation, Trend, and Countermeasure:
Research on Income Distribution Theory and Policy of the 17th national congress of the
communist party of China. Social Sciences in Ningxia,2009(2)( in Chinese)
[5]. YANG Heqing. China's labor economy blue book(2009). Beijing: China's labor social security
press,2010(1): p182 ( in Chinese)
266
M & D FORUM
[6]. Labor science institute of National labor and social security ministry. Senior Human resources
management training materials,2005: p134 ( in Chinese)
[7]. KANG Shiyong. Countermeasure Study on Effectively Controlling Unfair Distribution during the
12th Five-year Plan. Journal of Beijing Vocational College of Labor and Social Security(quarterly),
2010(2)( in Chinese)
[8]. People's Daily Online China's income distribution gap
http://english.peopledaily.com.cn/200606/29/eng20060629_278461.html
．
．
267