Occupational Choice and Income Inequalities under Regional Integration


  • The author thanks Shihe Fu, Nobuaki Hamaguchi, Noritsugu Nakanishi, Dao-Zhi Zeng, the editor and the anonymous referee for constructive comments. Financial support from the National Natural Science Foundation of China (Grant No. 71303202) and MOE (Ministry of Education in China) Major Project of Humanities and Social Sciences (Grant No. 13JZD010) is gratefully acknowledged.


In a setting with occupational choice and trade between two asymmetric regions, this paper explores the impact of market size and economic integration on both regional inequality and local income inequality within each region. It is shown that market access in a region affects income inequality measures, working through the cutoff productivity for entrepreneurship. Compared with the smaller region, selection into entrepreneurship is more likely for individuals in the larger region with better firm market access whereas the local income inequality is higher. Both regional inequality and regional disparities in the local income inequality measures exhibit an inverted U-shaped pattern when the regional integration level increases.