Wage inequality and the hukou system in China

Abstract

In this paper, we describe the formatting guidelines for ACM SIG Proceedings. Abstract This project aims to investigate the factors which vitally influence the wage inequality issues brought by the unique Hukou, or Household Registration System in China at the moment. Distinct from many developed economies, the gender and racial wage disparity problems are quite moderate in China, however, it has its own issues. In 1970s, Chinese government has introduced this Household Registration system (dubbed as Hukou) to impede the migration flow from rural to urban areas due to the imbalanced development. Basically, Hukou states people's legal registration place to live and work, and if workers move to other cities, the full rights cannot be guaranteed. Gradually, it develops as a certificate in the working place and actually segments the labour market. In this project, we classify the Hukou status based on its two properties: the location property and agriculture property. The first one divides workers into two types by looking at if they have a local or migrant Hukou status; and the latter one segments the labour force based on if workers have a rural or non-rural Hukou status. By using a national data set, we empirically verified that the Hukou system has indeed initiated the wage gaps among different types of workers. Moreover, we find that these two properties have a different impact on the wage inequality issues by decomposing the overall income disparity into two parts: an Endowment Component and a Discrimination Component. In the end, by looking at the pay differential at different quantiles along the distribution, we also find that the agricultural property of the Hukou has imposed a glass-ceiling effect on rural workers, which indicates the wage gap is larger between rural and non-rural labour for the high-wage earners than the low-income earners.