How are health capital and Income Inequality linked? Analysis of the 2012-2018 China Labor-force Dynamics Survey

Abstract How to alleviate income inequality is a significant challenge faced by all countries worldwide, and disparities in health capital are one of the fundamental causes of income gaps. A thorough exploration of the relationship between health capital disparities and income gaps holds substantial practical significance. Based on the 2012-2018 China Labor-force Dynamics Survey, we employ OLS models, quantile regression, Shapley value decomposition, and Oaxaca-Blinder decomposition to provide a detailed estimation of the impact of health capital disparities on income gaps of labour. We find that health capital is a crucial driver of income increase, with its impact most pronounced at the 20th income percentile. Additionally, through Shapley decomposition, we find that health capital contributes 12.2% to overall income inequality. Although female, middle-aged and elderly, rural, and low education level groups exhibit larger income inequality compared to their counterparts, health capital exerts a stronger influence on within-group income inequality for these disadvantaged populations. Furthermore, using Oaxaca-Blinder decomposition, we also find that health capital disparities contribute 12.8%, 12.31%, 9.83%, and 10.66% to the income gaps across gender, age, urban-rural, and education level groups, respectively. Health capital not only significantly affects within-group income inequality but is also a key determinant of between-group income gaps. Therefore, enhancing investments in health capital, particularly for vulnerable populations, will contribute to promoting income equality and social equity.