Fast development with a stable income distribution: Taiwan, 1979-94

This paper studies the mechanisms underlying the apparent stability of the income distribution in Taiwan. An original decomposition method based on micro-simulation techniques is proposed. Applied to the distribution of income in Taiwan since 1979, it permits isolating the respective impact of changes in: (a) the earning structure; (b) labor-force participation behavior; and (c) the socio-demographic structure of the population. The stability of the distribution in Taiwan appears as the result of various structural forces which happened to offset each other. The small drop observed in the inequality of individual earnings resulted from the combination of unequalizing changes in the wage structure and the effects of changes in female labor-force participation as well as in the educational structure of the population. However, the same offsetting forces, together with changes in the composition of households, resulted in a small increase in the inequality of the distribution of equivalized household income.