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The Role of China's Household Registration System in the Urban-Rural Income Differential

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  • Boffy-Ramirez, Ernest

    (University of Colorado Denver)

  • Moon, Soojae

    (University of Colorado Denver)

Abstract

Together with the rapid growth of the Chinese economy, there has been a growing divide in the earnings of urban and rural residents. In this paper we focus on China's household registration system, or "hukou", as a potential source of the earnings gap. Using multiple waves of data from the Chinese Health and Nutrition Survey from 1993 through 2011, we take advantage of variation in hukou status generated by individual-level changes over time. Unlike previous studies, we are able to control for fixed individual-specific characteristics that determine earnings and focus specifically on estimating an urban hukou "premium". For estimates that do not account for time-invariant individual characteristics, urban hukou holders earn almost 30% more than rural hukou holders. After we account for individual-level fixed characteristics, the urban hukou premium drops to 6–8%. Our empirical evidence indicates that the hukou system is a notable component of the urban-rural earnings differential, but its importance should not be overstated. Given long-standing differences in access to government funding and social services between rural and urban populations, relaxing residency restrictions may not be a panacea for curbing rising income inequality.

Suggested Citation

  • Boffy-Ramirez, Ernest & Moon, Soojae, 2017. "The Role of China's Household Registration System in the Urban-Rural Income Differential," IZA Discussion Papers 11022, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp11022
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    References listed on IDEAS

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    Cited by:

    1. Liao, Yu & Zhang, Junfu, 2021. "Hukou status, housing tenure choice and wealth accumulation in urban China," China Economic Review, Elsevier, vol. 68(C).

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    More about this item

    Keywords

    labor market frictions; hukou; migration; China; urban-rural income gap; inequality;
    All these keywords.

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J80 - Labor and Demographic Economics - - Labor Standards - - - General
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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