Income inequality among peers in China: Does internet penetration have a role?

• Published date: 01 August 2024
• Author: Yulin Liu,Xiaomei Li,Xin Fang
• Date: 01 August 2024
• DOI: http://doi.org/10.1111/rode.13090

REGULAR ARTICLE

Income inequality among peers in China: Does

internet penetration have a role?

Yulin Liu

1

| Xiaomei Li

2

| Xin Fang

3

1

Centre for Public Economy & Public

Policy Research, Chongqing University,

Chongqing, China

2

School of Public Policy and

Administration, Chongqing University,

Chongqing, China

3

College of Business, Hawaii Pacific

University, Honolulu, Hawaii, USA

Correspondence

Xiaomei Li, School of Public Policy and

Administration, Chongqing University,

Chongqing 400044, China.

Email: lixiaomei@cqu.edu.cn

Funding information

National Natural Science Foundation of

China, Grant/Award Number: 72173012;

Major Program of National Fund of

Philosophy and Social Science of China,

Grant/Award Number: 23&ZD174;

Fundamental Research Funds for the

Central Universities of China on

Chongqing University social science

platform project, Grant/Award Number:

2023CDJSKPT07

Abstract

In the Internet age, income inequality within peer

groups has raised attention. We examine the effect of

Internet penetration on peer income inequality and

investigate whether the Internet penetration and peer

income inequality relationship can be reinforced by

human capital. Using a combination of macro and

microdatabases of China over the period 2010–2018,

we find that peer income inequality in China generally

follows a downward trend from 2010. In addition, we

show that Internet penetration significantly reduces

peer income inequality. Internet penetration has a neg-

ative effect on peer income inequality among those

under 40 years old, while the effect is reversed among

those aged 40–60. Furthermore, human capital can

reinforce the links between Internet penetration and

peer income inequality. Our results confirm that a

mixed indicator of Internet penetration and human

capital investment should be part of an active economic

policy aimed at reducing peer income inequality.

KEYWORDS

entrepreneurship, human capital, internet access, internet

penetration, peer income inequality

1|INTRODUCTION

It is well known that peer experiences can either promote or impede individuals' social adapta-

tion and well-being (Bukowski et al., 2015,2018; Rubin et al., 2015). Inequality within the peer

group is strongly associated with individual happiness (Ferrer-i-Carbonell & Ramos, 2014;

Received: 24 March 2023 Revised: 13 August 2023 Accepted: 15 January 2024

DOI: 10.1111/rode.13090

984 © 2024 John Wiley & Sons Ltd. Rev Dev Econ. 2024;28:984–1004.wileyonlinelibrary.com/journal/rode

Schneider, 2016). There is some evidence that relative socioeconomic status may be more

important than absolute socioeconomic status for peer groups (Hjalmarsson & Mood, 2015).

Similarly, Schneider (2016) states the following:

While empirical research on the relative income effect has focused so far on the distance

between the average income of a reference group and a person's income (see Senik, 2009), more

research is needed on the influence of the distribution of incomes within the reference group on the

comparison process.

With the rapid development of the Internet, the competition between peer groups is becom-

ing increasingly intense, especially in China. According to official data from the Chinese

National Bureau of Statistics,

1

the Internet penetration rate reached 73% in 2021 (Figure 1).

“Involution,”“lying down,”“chicken kid,”“education devaluation,”and other Internet terms

are often hotly debated in China. Young people and even children are constantly in comparison

and competition with their peers. This may indicate that what people are more worried about is

not the overall inequality but the relative inequality in the same age group. A large income gap

at the same age tends to discourage ordinary people from striving for upward mobility, which is

not conducive to social stability and development in the long run. Moreover, social networking

sites based on communication technology have become extremely popular worldwide, provid-

ing a port of entry to the Internet for many who were previously “digitally excluded,”for exam-

ple, in developing countries or disadvantaged segments of the population (Correa, 2016;Ma

et al., 2020). Within their peer group, better-off adolescents do not necessarily have more access

to social networks than less well-off adolescents (Earl, 2015). In view of the complexity of the

relationship between Internet penetration and income inequality within the peer group, studies

of its role are urgently needed.

The rapid spread of the Internet is due to its ability to cover almost all areas of people's lives

and work. To date, several studies have highlighted the effects of Internet penetration. First,

studies analyze the impact of Internet penetration on macro-level economic growth (Bai, 2017;

Lin et al., 2017; Xu et al., 2019). Second, studies examine the income effects of Internet use on

individuals at the microlevel. In this regard, most studies have found a significant contribution

of Internet use to individual income (DiMaggio & Bonikowski, 2008; Krueger, 1993). However,

there is a lack of research on whether and how Internet penetration affects peer income

0

10

20

30

40

50

60

70

80

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

FIGURE 1 Internet penetration rate in China. Source: The Chinese National Bureau of Statistics. [Colour

figure can be viewed at wileyonlinelibrary.com]

LIU ET AL.985