Growth and Common Prosperity in China

Abstract This paper introduces a decomposition method that quantifies the contributions to common prosperity of labor market performance and social policies and extends the idea of shared prosperity to a new measure of inequity in opportunities. The resulting common prosperity indices and opportunity equality indices are then applied to five waves of the Chinese Household Income Project data from 1988 to 2018. This paper shows that the labor market performance and social policies have been improving over the last 30 years and have helped China move towards common prosperity for everyone. The indices developed in this paper allow us to quantify the extent of shared prosperity that a country has achieved and to carry out empirical studies on which policy is working and which is not. It can also help us identify the fundamental causes of inequality and aid us in achieving equality in opportunity among all members of society.