Land Security and Mobility Frictions

Frictions that impede the mobility of workers across occupations and space are a prominent feature of developing countries. We disentangle the role of insecure property rights from other labor-mobility frictions for the reallocation of labor from agriculture to nonagriculture and from rural to urban areas. We combine rich household and individual-level panel data from China and an equilibrium quantitative framework featuring sorting of workers across locations and occupations. We explicitly model the farming household and the endogenous decisions of who operates the family farm and who potentially migrates, capturing an additional channel of selection in the household. We find that land insecurity has substantial negative effects on agricultural productivity and structural change, raising the share of rural households operating farms by over 40 percentage points and depressing agricultural productivity by more than 20%. Comparatively, these quantitative effects are as large as those from all residual labor-mobility frictions. We measure a sharp reduction in overall labor-mobility barriers over 2004–2018 in the Chinese economy, all accounted for by improved land security, consistent with reforms covering rural land in China during the period. JEL Codes: O11, O14, O4, E02, Q1.