Internet usage and the income gap between self‐employed individuals and employees: Evidence from China

• Published date: 01 August 2023
• Author: Xinxin Ma
• Date: 01 August 2023
• DOI: http://doi.org/10.1111/rode.12969

REGULAR ARTICLE

Internet usage and the income gap between

self-employed individuals and employees:

Evidence from China

Xinxin Ma

Faculty of Economics, Hosei University,

Tokyo, Japan

Correspondence

Xinxin Ma, Faculty of Economics, Hosei

University, 4342 Machita-shi

Aiharamachi, Tokyo, 194-0298, Japan.

Email: xxma@hosei.ac.jp

Funding information

Japan Society for the Promotion Science,

Grant/Award Number: 20H01512

Abstract

Using longitudinal data from the China Family Panel

Studies, we investigate the impact of Internet usage on

the income gap between self-employed individuals and

employees in China, considering the sample selection

bias and individual heterogeneity issues. We divided

employment statuses into three types―small entre-

preneur, own-account worker, and employee. The find-

ings reveal the following: First, the returns from

Internet usage differ by employment type, which is

lower for self-employed individuals than that for

employees. Second, the difference in Internet usage

contributes to widening the income gap, whereas the

difference in the returns from Internet usage to income

contributes to narrowing it. Finally, Internet usage

exerts a greater impact on the income gap between

employees and small entrepreneurs than that between

employees and own-account workers. These empirical

results suggest that the division of Internet access may

exacerbate the segmentation of the formal and informal

sectors in China.

KEYWORDS

China, employee, income gap, internet usage, self-employed

individual

JEL CLASSIFICATION

O17, L86, J31

Received: 2 May 2022 Revised: 24 November 2022 Accepted: 11 December 2022

DOI: 10.1111/rode.12969

Rev Dev Econ. 2023;27:1509–1536. wileyonlinelibrary.com/journal/rode © 2022 John Wiley & Sons Ltd. 1509

1|INTRODUCTION

This study investigates the influence of Internet usage on income gaps between individuals in

the self-employment sector

1

(self-employed individuals) and employees in China, which has the

highest number of non-agricultural self-employed individuals and Internet users worldwide,

and has had high-income inequality in the past two decades (NBS, 2018; Sicular, Li, Yue, &

Sato, 2020).

2

The development of the self-employment sector can promote economic growth in develop-

ing countries (ILO, 1972).

3

Thus, it is important to study the self-employment sector of these

countries, including that of China (Awasthi, Kumaraswamy, & Boeri, 2020; Guzman &

Clair, 2021; Jacolin, Massil, & Noah, 2021; Ma & Li, 2022). During 1949–1977, China operated

as a centrally planned economy and banned the self-employment sector as being a capitalist

market practice. However, in the early 1980s, the Chinese government permitted the self-

employment sector to operate to address the issue of urban employment. At the same time, the

implementation of the household responsibility system in rural areas brought about a substan-

tial increase in rural labor productivity and underscored the problem of surplus labor in the

rural areas (Minami & Ma, 2014). With the deregulation of the household registration system

(hukou), the proportion of rural-to-urban migrants increased greatly and augmented China's

self-employment sector. The number of workers in China's non-agricultural self-employment

sector increased from 0.15 million in 1978 to 21.36 million in 2000 and 160.37 million in 2019

(NBS, 2020). Although this sector has developed significantly in the Chinese labor market, only

a few studies have shed light on this sector (Ma & Li, 2022).

Ever since information and communications technology (ICT) progressed in developed

countries in the 1970s, job content and work statuses have changed tremendously. This change

has led to new developments in the self-employment sector, such as the emergence of ICT-

based business startups (OECD, 2022). The Chinese government launched the “Internet Plus”

policy in the 2000s to encourage the development of ICT in the country (Liu & Xin, 2020;Ma&

Li, 2022). However, this technological advancement has widened income gaps (Ma, 2022;

Njangang, 2022; Zuo & Hong, 2021), creating a huge social divide and instability (Balcilar,

Gupta, Ma, & Makena, 2021; Golin, 2022; Su, Zhou, Ye, & Li, 2021). Studies have also shown

that an income gap exists between self-employed individuals and employees of both developed

and developing countries (Huang, Sheng, & Shui, 2020; ILO, 2015,2018; Ma & Li, 2022). Thus,

with changes in employment statuses and the rapid expansion of Internet usage, it becomes

imperative to investigate how Internet usage affects the income gap between different employ-

ment groups in China as research on this issue is limited.

Filling the gap in the existing literature and enhancing the literature on China's self-

employment sector, this study investigates how Internet usage affects the income gap between

self-employed individuals and employees. It contributes to the existing literature in the follow-

ing four ways: First, studies on China's self-employment sector have not classified self-

employment into suitable categories. The self-employed individuals can be classified into small

entrepreneurs and own-account workers (Earle & Sakova, 2000; ILO, 2015,2018).

4

Small entre-

preneurs contribute to economic growth by creating jobs for others, new business opportunities,

and innovating products for society (Dell'Anno, 2021a,2021b; ILO, 2018). Conversely, own-

account workers are similar to passive workers discussed in the disguised-unemployment

hypothesis. That is, they are individuals who are unable to enter the formal sector; therefore,

they enter the self-employment sector and wait for the right opportunity to join the formal sec-

tor in the future. The Lewis model explains these two sectors (Lewis, 1954; Todaro, 1969).

1510 MA