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Social Identity and Inequality--The Impact of China’s Hukou System

Listed author(s):
  • Farzana Afridi

    (Department of Economics, Delhi School of Economics, Delhi, India)

  • Sherry Xin Li

    (School of Economic, Political and Policy Sciences (EPPS) University of Texas at Dallas, GR31)

  • Yufei Ren

    (School of Economic, Political and Policy Sciences (EPPS) University of Texas at Dallas, GR31)

We conduct an experimental study to investigate the causal impact of social identity on individuals? response to economic incentives. We focus on China?s decades old household registration system, or the hukou institution, which categorizes citizens into urban and rural residents, and favors the former over the latter in resource allocation. Our results indicate that making individuals? hukou status salient and public significantly reduces the performance of rural migrant students on an incentivized cognitive task by 10 percent. This leads to a leftward shift of their earnings distribution – the proportion of rural migrants below the 25th earnings percentile increases significantly by almost 19 percentage points. However, among non-migrants the proportion with earnings below the 25th percentile drops by 5 percentage points, and the proportion above the 75th percentile increases by almost 8 percentage points, albeit insignificantly. The results demonstrate the impact of institutionally imposed social identity on individuals? intrinsic response to incentives, and consequently on widening income inequality.

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Paper provided by Centre for Development Economics, Delhi School of Economics in its series Working papers with number 190.

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Length: 51 pages
Date of creation: Oct 2010
Handle: RePEc:cde:cdewps:190
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