Provincial valuations of human capital in urban China, inter-regional inequality and the implicit value of a Guangdong hukou

This paper assesses regional inequality in contemporary urban China by predicting earningss for individual workers in multiple provinces, comparing the province of maximum predicted earnings to the province of residence and assessing the predicted gains from relocation. The paper performs the same comparison for the U.S. in 1940 to provide an informal baseline comparison. Workers predicted relatively similar earningss in each of the nine U.S. Census divisions. Fewer than 10% of them predicted maximum earnings in divisions other than their home division that exceeded their predicted home division earnings by more than 20%. In contrast, 45% of Chinese urban workers in 1988 predicted maximum earnings in provinces outside their home province that exceeded their predicted home province earningss by more than 50%. The same was true of 54% of Chinese urban workers in 1995, 74% in 2002 and 57% in 2008. If all Chinese urban workers received the maximum of their predicted earningss across all provinces, rather than their predicted earnings in their home province, average earningss would approximately double, interpersonal inequality would decline by 40-50% and inter-provincial inequality would vanish. In all years, predicted earnings in Guangdong province have generally been greater than in any other province. The implicit value of the right to live in Guangdong was at least 26% of earnings in 1988 and 41% in 1995. It declined to about 7% of earnings in 2002 and 2008, but only because predicted earnings in Beijing and Shanghai had risen. The gaps between predicted earnings in Guangdong and other provinces in those years was similar to those in earlier years.