Stay or Return? A Study of Migrants’ Savings and Labor Supply Decisions

Abstract

The large-scale migrant is a significant feature of China’s economy. In 2018, the migrant was 241 million, accounting for 17.28% of the total population, which means that one in every six people is the migrant. However, these migrants have been in a very “hard” state for a long time, characterized by “high saving rate” and “high labor supply”. This paper attempts to explain the above phenomena based on the hypotheses of labor inter-temporal substitution and settlement costs. The inter-temporal substitution hypothesis is also one of the basic theories in macroeconomics. It can also be applied and tested at a micro level, which is helpful to understand the laws of China’s overall macro savings and labor supply. In addition, the analysis of savings and labor supply decisions contributes to extrapolating the determinants of social welfare among the migrating population and giving some suggestions on supportive policies. Based on the theoretical model and the dynamic monitoring data of China’s migrants, this paper analyzes the impact of settlement intention and residential assets on savings and labor supply. The study finds that migrants intending to stay have a lower saving rate and less labor supply than migrants intending to return based on the consideration that their incomes tend to decline in the future, which supports the inter-temporal substitution hypothesis. Migrants with no house located in the place of immigration have a higher savings rate and more labor supply, which supports the settlement cost hypothesis. The reason for the high savings rate and more labor supply of migrants varies in different groups: Migrants who move alone and have lower skills work harder and consume less based on the inter-temporal substitution hypothesis, while those who move with the whole family and have higher skills tend to supply more labor and save more so as to afford settlement costs to integrate into the local society. For the former, the government can reduce the impact of inter-temporal substitution by narrowing the income gap between regions, actively promoting the employment of returnees nearby and helping them to start their own business. For the latter, the government should increase the effective supply of indemnificatory housing, improve the accessibility of public services for migrants, and reduce the restrictions on the settlement of certain groups, especially for those who have worked and lived in cities for more than five years, those who have moved with the whole family, and those with high skills. The contributions of this paper are as follows: First, on the basis of discussing the problem of high savings of migrants, it further explores the causes of high labor supply and analyzes the welfare conditions of migrants more comprehensively. Second, for the particularity of migrants, the income difference between the immigration and emigration places, as well as settlement costs, are included in the utility function. Third, it divides the migrants into two groups: those who intend to stay and those who intend to return, and further analyzes the heterogeneity of their behavioral motivation of saving and labor supply.