The impact of digital economy on income inequality from the perspective of technological progress-biased transformation: evidence from China

We construct a dynamic theoretical analysis framework on how the development of digital economy affects income inequality, and then, we put forward competitive hypotheses about the technology-biased of digital economy. We select the provincial data of China from 2011 to 2019 as the research objects, and we use the CHFS and CFPS databases to measure the Gini coefficient as the indicator of income inequality. We adopt panel data fixed effect model, threshold model to verify which one of the competitive hypotheses is correct. The empirical study shows that the digital economy has a threshold effect on income inequality. The digital economy does not have a significant effect on income inequality at the early stage of development, increases income inequality after a certain level of development, and decreases income inequality when the digital economy is developed. This conclusion holds robustly after endogenous and robustness tests. From the macro perspective, the digital economy contributes to the increase in labor share, but only in regions with large numbers of high-skilled workers can reduce income equality. From the micro-perspective, the development of the digital economy and the increase in wage income jointly reduce income inequality. However, digital economy would reduce wage income when the digital economy is undeveloped, and increased wage income when the digital economy is developed. Therefore, the technological progress of digital economy would transform from bias to unbias. With the development of digital economy, the number of workers who can enjoy digital welfare will be more and more.