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Inequality Change in China and (Hukou) Labour Mobility Restrictions

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  • John Whalley
  • Shunming Zhang

Abstract

We analyze the Hukou system of permanent registration in China which many believe has supported growing relative inequality over the last 20 years by restraining labour migration both between the countryside and urban areas and between regions and cities. Our aim is to inject economic modelling into the debate on sources of inequality in China which thus far has been largely statistical. We first use a model with homogeneous labour in which wage inequality across various geographical divides in China is supported solely by quantity based migration restrictions (urban -- rural areas, rich -- poor regions, eastern coastal -- central and western (noncoastal) zones, eastern and central -- western development zones, eastern -- central -- western zones, more disaggregated 6 regional classifications, and an all 31 provincal classification). We calibrate this model to base case data and when we remove migration restrictions all wage and most income inequality disappears. Results from this model structure point to a significant role for Hukou restrictions in supporting inequality in China, and show how economic rather than statistical modelling can be used to decompose inequality change. We then modify the model to capture labour efficiency differences across regions, calibrating the modified model to estimates of both national and regional Gini coefficients. Removal of migration barriers is again inequality improving but now less so. Finally, we present a further model extension in which urban house price rises retard rural - urban migration. The impacts of removing of migration restrictions on inequality are smaller, but are still significant.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10683.

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Date of creation: Aug 2004
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Handle: RePEc:nbr:nberwo:10683

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References

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  1. Chang, Gene H., 2002. "The cause and cure of China's widening income disparity," China Economic Review, Elsevier, vol. 13(4), pages 335-340, December.
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Cited by:
  1. Juann H. Hung, 2008. "China's Approach to Capital Flows Since 1978: Working Paper 2008-02," Working Papers 19565, Congressional Budget Office.
  2. Jongchul Lee, 2006. "Sources Of Divergence Between Coastal And Interior Regions In China," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 31(2), pages 123-138, December.
  3. Lindbeck, Assar, 2006. "Economic-Social Interaction during China’s Transition," Working Paper Series 680, Research Institute of Industrial Economics.
  4. Christopher Candelaria & Mary Daly & Galina Hale, 2009. "Beyond Kuznets: persistent regional inequality in China," Working Paper Series 2009-07, Federal Reserve Bank of San Francisco.
  5. Messinis, George, 2013. "Returns to education and urban-migrant wage differentials in China: IV quantile treatment effects," China Economic Review, Elsevier, vol. 26(C), pages 39-55.
  6. Jason Gagnon & Theodora Xenogiani & Chunbing Xing, 2009. "Are all Migrants Really Worse off in Urban Labour Markets?: New empirical evidence from China," OECD Development Centre Working Papers 278, OECD Publishing.
  7. He, Qing & Tai-Leung Chong, Terence & Shi, Kang, 2009. "What accounts for Chinese Business Cycle?," China Economic Review, Elsevier, vol. 20(4), pages 650-661, December.
  8. Lall, Somik V. & Selod, Harris & Shalizi, Zmarak, 2006. "Rural-urban migration in developing countries : a survey of theoretical predictions and empirical findings," Policy Research Working Paper Series 3915, The World Bank.
  9. Hiroshi Sato & Li Shi, 2008. "Class Origin, Family Culture, and Intergenerational Correlation of Education in Rural China," Global COE Hi-Stat Discussion Paper Series gd08-007, Institute of Economic Research, Hitotsubashi University.
  10. Arvind Virmani, 2009. "China’s Socialist Market Economy: Lessons for Democratic Developing Countries," Working Papers id:1899, eSocialSciences.
  11. Xu, Cheng-Gang, 2010. "The Institutional Foundations of China’s Reforms and Development," CEPR Discussion Papers 7654, C.E.P.R. Discussion Papers.
  12. Lipschitz, Leslie & Rochon, Céline & Verdier, Geneviève, 2011. "A real model of transitional growth and competitiveness in China," Journal of Asian Economics, Elsevier, vol. 22(4), pages 267-283, August.
  13. Kuijs, Louis & Wang, Tao, 2005. "China's pattern of growth : moving to sustainability and reducing inequality," Policy Research Working Paper Series 3767, The World Bank.
  14. Poncet, Sandra, 2006. "Provincial migration dynamics in China: Borders, costs and economic motivations," Regional Science and Urban Economics, Elsevier, vol. 36(3), pages 385-398, May.
  15. Arvind Virmani, 2006. "China’s Socialist Market Economy - Lessons Of Success," Macroeconomics Working Papers 22274, East Asian Bureau of Economic Research.
  16. Chenggang Xu, 2011. "The Fundamental Institutions of China's Reforms and Development," Journal of Economic Literature, American Economic Association, vol. 49(4), pages 1076-1151, December.

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