VOL 89 NO. 2 ISTRIBUTION IN CHINA education. There was thus a strong case, as part in such a way that it actually contributed of the process of reform and integration into the greater inequality. The concentration ratio for lobal economy, to increase wage differentials. housing subsidies increased by 65.9 percent And this in fact is what happened, so that by(from 0. 311 to 0.516), and the concentration 1995 the concentration ratio for wage income ratio for the rental value of owned housing in- had increased to 0. 247. In that year, inequality creased by 89. 1 percent( from 0.338 to 0.639) in the distribution of wages accounted for 45.6 In 1995, nearly 41 percent of the remaining percent of overall inequalit housing subsidies were received by the richest Unfortunately, the tax/subsidy system and 10 percent of the urban population, and just other urban policies were not adjusted to com- over 60 percent of the rental value of owned pensate for increased wage inequality. Instead housing accrued to the top 10 percent of the by creating a highly disequalizing"system subsidies combined)accounted for 37 percent of net subsidies, promoting a housing reform of overall inequality in the distribution of in- that resulted in an extremely uneven distribu- come in urban areas in 1995 tion of housing assets and housing services, One of the reasons why poverty persisted and by failing to construct an adequate safety in spite of rapid overall growth, is that the net before state-enterprise reform began gen- GDP elasticity of personal income was low erating large numbers of layoffs of state-sector that is, the growth in personal income(the orkers at partial or no pay. variable in terms of which poverty thresholds Despite their possible adverse effects on ef- are measured) was much slower than the ficiency, ration coupons in 1988 were the most growth in GDP. This was due to macroeco equitably distributed of all urban subsidies, nomic policies that affected the distribution of and these had an equalizing effect on urban incremental GDP among households, govern- income distribution. By 1995 the ration- ment, and"" sectors and between coupon system had been abolished, and house consumption and accumulation. The dramatic holds were required to obtain their food fall in net subsidies and transfers from the gov- upplies and other essentials on the free mar- ernment and collectives and the relentless ket. Housing subsidy in kind was the principal drive for ever higher rates of accumulation remaining element in a system of urban sub- resulting in an increase in the domestic saving sidies, and as discussed below, its distribution rate from an already high 37. 5 percent of GDP was far more unequal in 1995 than in 1988. in 1988 to a staggering 42 percent in 1995, are The contribution of"net nonhousing subsi- some of the manifestations of this process dies'' to total urban incomes fell from 20.94 Rapid of employment, arising percent to 1.25 percent between 1988 and from labor-intensive industrialization pro 1995, and the residual subsidies were distrib- moted by freer trade and greater integration uted less equally into the global economy, might have offset Reform of the housing system had similarly at least in part greater inequality in the dis- unfortunate consequences. In 1988, only 13. 8 tribution of wage earnings. If this had oc percent of the urban population lived in private curred, the urban population would have housing; by 1995 the proportion living in their been protected from rising poverty even if own homes had risen to 41.7 percent. The rel- not from increased inequality. Unfortunately tive importance of housing subsidies in kind industrialization during the period of glob fell by nearly half, while the importance of the alization has so far been remarkably hostile rental value of owned housing rose nearly to job creation. Indeed, the output elasticity threefold( compare rows 6 and 7 in Table 1A). of employment has been extraordinarily lo Widespread privatization of the housing stock for urban industries as a whole, namely was in principle commendable, but it was done 0.037. This has happened despite a very high output elasticity of employment in industries under private and other new forms of own- s The number of layoffs has continued to mount, reach- ership. The problems have arisen from the significantly negative output elasticity of