More unequal yet more alike, the changing patterns of family formation, generational mobility and household income inequality in China: a counter-factual analysis

China’s household income inequality has grown steadily over the last 30 years. While many analyses focus on the effects of policies relating to urban-rural and inland-coastal distinctions, growth in inequality has prevailed on both sides of those respective divides suggesting something more fundamental is at play. Here, certain patterns of family formation and human capital transfer are shown to engender increases in household income inequality measures. A unique data set, linking grandparents, parents and children, yields evidence of structural change toward such patterns over successive cohorts of households. Influenced by such events as the Cultural Revolution, the One Child Policy and the Economic Reforms, people intensified positive assortative matching behaviors and polarizing human capital transitions. Social class designations became less important and educational class designations became more important. A counterfactual analysis verified the impact of these changes on household income inequality in urban China, revealing increasing similarity between cohorts amidst growing inequality.