Rural-urban Migration Decisions in China: Evidence from Rural Household Panel Data

This paper analyzes the household's off-farm labor response to risk using the Research Center on the Rural Economy (RCRE) panel data in China. This paper aims to find out whether the off-farm labor market, especially the migrant labor market, could be used as a means of coping with risk and shocks to income by poor households in rural China who have only limited access to the credit and insurance markets for managing risk. Instead of using the endogenous transitory income variance under the short time span of the data, we suggest using relatively exogenous measure of risk, such as the coefficient of variation of rainfall in each village, might be more appropriate to find the effect of risk on household's off-farm labor participation decision. Our results support the idea that households facing a riskier or more volatile distribution of precipitation are more likely to participate in the off-farm labor market. Attention to the potential risk-coping benefits from off-farm employment is timely for Chinese policy makers because both local and national policies accommodating the growth of markets for off-farm migrant labor have come under increasing pressure. As cities face growing problems of unemployed workers from state- owned enterprises, both local and national governments have taken measures to reduce competition for jobs between rural laborers and those urban residents left unemployed during the state-owned enterprises reform period. This paper suggests that rural resident would suffer from urban policies restricting the in-flow of migrants in two ways. Households sending temporary migrants to cities will suffer both a loss of income, and a loss of means of coping with risk. In fact, the analysis of this paper suggests that the welfare of Chinese farm households in rural areas can be further improved by eliminating the remaining institutional obstacles to expansion of migrant employment opportunities.