Analysis on the Relationship between Regional Innovation and Income Inequality in Chinese City Regions

Previous literature has not yet reached a conclusion on the relationship between innovation and income inequality; thus, this study examines this relationship across Chinese city regions from 2004 to 2012. A nonlinear relationship between innovation and income inequality is observed, and this result is robust to different measures of income inequality, threshold effect models, and subsample analysis and is also supported by a disaggregate analysis based on individual incomes. These findings suggest directions for public policy. To moderate income inequality attributed to innovation, policy should facilitate the income spillover to less skilled laborers by improving human capital and maximizing the employment compensation effect through reducing discrimination against the less skilled, particularly less skilled rural migrants.