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Internal migration and labor share: Theory and evidence

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  • Yang, Yang
  • Yu, Qi
  • Zhang, Junsen
  • Zhou, Kang

Abstract

This paper examines the effect of internal migration on firms’ labor share. We develop a theoretical framework in which rural-to-urban migration increases the labor share of local firms by substituting labor for capital and increasing the skill wage premium. Using a “shift-share” instrumental variable approach, we show that migration inflows increase the labor share of local firms in China. To test the mechanisms predicted by the model, we show that migration inflows reduce capital per worker, raising the relative wages of skilled labor while lowering the skill composition of firm employment. Finally, heterogeneity analysis reveals that the effect is more pronounced among private firms and highly educated migrants, with no significant gender differences.

Suggested Citation

  • Yang, Yang & Yu, Qi & Zhang, Junsen & Zhou, Kang, 2026. "Internal migration and labor share: Theory and evidence," Journal of Comparative Economics, Elsevier, vol. 54(2), pages 429-444.
    • Handle: RePEc:eee:jcecon:v:54:y:2026:i:2:p:429-444
    DOI: 10.1016/j.jce.2026.01.005
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    Keywords

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    JEL classification:

    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • P25 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Urban, Rural, and Regional Economics
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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