The Heterogeneity of Income Risk in China

China has been experiencing large scale rural-urban migration and economic growth in the urban private sector since the early 1990s. At the same time, income inequality has increased substantially. We estimate separate labor income processes for different groups of workers. Rural workers face the highest degree of income uncertainty, while workers in urban private firms face significantly larger risk than workers in the urban non-private sector. There is no significant increase in income uncertainty for any specic group. Also we estimate a process for TFP shocks of privately owned firms, which gives us a measure of the large uncertainty faced by Chinese entrepreneurs in the growing private sector