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The Hukou Impact on the Chinese Wage Structure

Listed author(s):
  • Christian Dreger
  • Yanqun Zhang

Faster urbanization plays a key role in the Chinese economic transformation. However, at the Lewis turning point, the hukou institution constitutes a serious risk to the process, as it restricts the access of migrants to public services offered by cities. To attract further migration, firms started to accept a premium on top of the wage. Thus, the social discrimination introduced by the hukou system is partially compensated by the reactions of market participants, as migrant workers receive additional pay. Based on huge cross sections of private households, this paper provides insights into the size and the evolution of the wage premium. After controlling for standard wage determinants, such as sex, education, experience and ownership of firms, we find that the premium amounts to 7 percent of the hourly wage. Because of the premium, the share of non-wage labor costs is on the rise, especially for low-skilled migrants. To avoid further distortions and reduce inefficiencies, the hukou status should be unified. Migrants should obtain urban hukou as long as they live in cities. They should keep their land use rights when they are in the rural areas. Otherwise, the system could constitute a significant barrier for further urbanization. The removal of institutional bias could restore the link between wages and productivity and improve the allocation of labor.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.556351.de/dp1660.pdf
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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1660.

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Length: 18 p.
Date of creation: 2017
Handle: RePEc:diw:diwwpp:dp1660
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  1. Qiang Fu & Qiang Ren, 2010. "Educational Inequality under China's Rural–Urban Divide: The Hukou System and Return to Education," Environment and Planning A, , vol. 42(3), pages 592-610, March.
  2. Zhang, Xiaobo & Yang, Jin & Wang, Shenglin, 2011. "China has reached the Lewis turning point," China Economic Review, Elsevier, vol. 22(4), pages 542-554.
  3. Yang, Dennis Tao, 2005. "Determinants of schooling returns during transition: Evidence from Chinese cities," Journal of Comparative Economics, Elsevier, vol. 33(2), pages 244-264, June.
  4. Liu, Zhiqiang, 2005. "Institution and inequality: the hukou system in China," Journal of Comparative Economics, Elsevier, vol. 33(1), pages 133-157, March.
  5. Christian Dreger & Tongsan Wang & Yanqun Zhang, 2015. "Understanding Chinese Consumption: The Impact of Hukou," Development and Change, International Institute of Social Studies, vol. 46(6), pages 1331-1344, November.
  6. Zhang, Li & Sharpe, Rhonda Vonshay & Li, Shi & Darity, William A., 2016. "Wage differentials between urban and rural-urban migrant workers in China," China Economic Review, Elsevier, vol. 41(C), pages 222-233.
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  8. Zhang, Junsen & Zhao, Yaohui & Park, Albert & Song, Xiaoqing, 2005. "Economic returns to schooling in urban China, 1988 to 2001," Journal of Comparative Economics, Elsevier, vol. 33(4), pages 730-752, December.
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  10. Qiang Fu & Qiang Ren, 2010. "Educational inequality under China’s rural – urban divide: the hukou system and return to education," Environment and Planning A, Pion Ltd, London, vol. 42(3), pages 592-610, March.
  11. Christian Dreger & Reinhold Kosfeld & Yanqun Zhang, 2016. "Determining Minimum Wages in China: Do Economic Factors Dominate?," Discussion Papers of DIW Berlin 1547, DIW Berlin, German Institute for Economic Research.
  12. Denise Côté & Carlos de Resende, 2008. "Globalization and Inflation: The Role of China," Staff Working Papers 08-35, Bank of Canada.
  13. Mitali Das & Papa M N'Diaye, 2013. "Chronicle of a Decline Foretold; Has China Reached the Lewis Turning Point?," IMF Working Papers 13/26, International Monetary Fund.
  14. Lu, Zhigang & Song, Shunfeng, 2006. "Rural-urban migration and wage determination: The case of Tianjin, China," China Economic Review, Elsevier, vol. 17(3), pages 337-345.
  15. Barry Naughton, 2007. "The Chinese Economy: Transitions and Growth," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262640643, January.
  16. Chang, Kyung-Sup, 1994. "Chinese urbanization and development before and after economic reform: A comparative reappraisal," World Development, Elsevier, vol. 22(4), pages 601-613, April.
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