Transcending Hukou Barriers Effectively Unleashes the Income-Raising Effect of Education: Based on an “Agricultural to Non-agricultural Hukou Conversion” Perspective

Abstract

The relatively low rate of return to education has played an important role in explaining the urban-rural income disparity. However, rural residents have a high demand for education, and one significant reason is that education can help them break the restrictions of the household registration (hukou) system and obtain a higher income. Using data from the 2017 China Household Finance Survey (CHFS 2017), this study employs unconditional quantile regression to find that after reclassifying individuals who have experienced agricultural to non-agricultural hukou conversion back to the rural household registration category, the income-promotion effect on the rural population of completing high school and university education is significantly enhanced. The decomposition analysis using the recentered influence function (RIF) reveals that when considering the agricultural to non-agricultural hukou conversion group, the income disparity between urban and rural areas caused by education is noticeably alleviated. Furthermore, the endogenous switching regression model finds that individuals with agricultural hukou are generally less likely to work in formal institutions. Improving educational attainment helps increase the probability of their obtaining non-agricultural hukou and entering formal employment, resulting in higher income. Hence, policymakers should focus on improving the quality of rural education and reforming the household registration system to gradually eliminate the occupational segregation and income disparity caused by hukou barriers.