Identifying heterogeneous income groups in China: a latent class analysis

This study employs Latent Class Analysis (LCA) to identify hidden income structures among low- and middle-income households in China, using CFPS data from 2012 to 2022. Conventional income classifications often overlook structural heterogeneity across households. Our analysis reveals several distinct latent classes characterized by differences in asset ownership, employment stability, and consumption patterns. Notably, we identify a ‘latent middle-income group’ with upward income potential but limited assets and unstable employment, which remains obscured under standard income metrics. Recognizing this group is critical for understanding income mobility dynamics. The findings provide new insights into income group segmentation and support more targeted policies to promote middle-class expansion and enhance income equity in China.