Internet Penetration and Income Inequality: Evidence from the Chinese Young Labor Market

The Internet technology has had a visible impact on the daily work and lives of people, especially the youth. This paper aims to investigate the influence of Internet technology on labour income as well as the channels through which income is affected, with a variety of empirical methods. Using the Chinese Family Panel Survey (CFPS) in 2014 and 2018, we discover that a ‘digital gap’ in Internet use is emerging. First, young labour force with higher income and education, urban identity, and working in high-skilled industry earn more from Internet use than their peers. Second, the return of operational income is higher than the return of wage income. Third, the return on long-term Internet use is higher than the return on short-term Internet use; however, the return has tended to decline, particularly among the bottom 25% income groups. Forth, the Internet affects their income through three main channels: assisting learning, improving working efficiency, and promoting information sharing. We also offer a few policy suggestions (e.g. improving the allocation of Internet resources).