Provincial Valuations of Human Capital in Urban China, Inter-provincial Inequality and the Implicit Value of a Guangdong Hukou

Abstract

This paper assesses regional inequality in urban China. It predicts earnings for each worker in multiple provinces, compares provinces of residence and maximum predicted earnings, and estimates predicted relocation gains. It presents a reference comparison for the U.S. in 1940. Only 7.4% of U.S. urban workers predicted maximum earnings outside their home divisions that exceeded predicted home division earnings by more than 20%. In contrast, in 1988, 1995, 2002, 2008 and 2013, respectively, 45%, 54%, 74%, 57% and 42% of urban Chinese workers predicted maximum earnings outside their home provinces that exceeded predicted home province earnings by more than 50%. These potential gains were equivalent to the earnings gains from at least seven years of additional schooling. If workers had received maximum predicted earnings, average earnings would have been greater by between 42% and 83% and interpersonal inequality would have been less in all but 2013. If they had received maximum predicted earnings in their home provinces, inter-provincial inequality would have vanished. Predicted earnings were generally greatest in Guangdong, most strikingly in the earliest years. Discrepancies of these magnitudes suggest that the Chinese internal economy suffers from multiple obstacles to internal integration.