Labor Migration and Earnings Differences: The Case of Rural China

Abstract

This article presents empirical evidence supporting the hypothesis that the decision of Chinese rural people to migrate is affected by noneconomic forces. Using the 1820 rural household survey from Sichuan province migration behavior and earnings are analyzed. Logistic probability models show that the decision to migrate is driven largely by the availability of rural non-farm employment opportunities. However if jobs are available in the province even at lower wages rural people will choose to stay rather than to migrate. The major deterrent to migration is the lack of safety during transportation and in destination cities as well as forced separation from families. Moreover rural migrants are denied the legal right to reside permanently in cities. Furthermore findings reveal that although labor productivity in migrant activities is higher than it is in local non-farm sectors the economic cost of migration in China is so high as to significantly limit reallocation. One implication of this study is that without artificial barriers to labor migration the number of migratory workers would be higher. Since the important objective of the Chinese government is to control rural-to-urban migration it is likely that restrictive migration policies will continue. However putting aside the issue of social justice the economic efficiency loss under the Chinese system should not be ignored.