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Migration Costs, Sorting, and the Agricultural Productivity Gap

Author

Listed:
  • Qingen Gai
  • Naijia Guo
  • Bingjing Li
  • Qinghua Shi
  • Xiaodong Zhu

Abstract

We use a unique panel dataset and a policy experiment as an instrument to estimate the impact of policy-induced migration cost reductions on rural-to-urban migration and the associated increase in labor earnings for migrant workers in China. Our estimation shows that there exist both large migration costs and a large underlying productivity difference between rural agricultural and urban non-agricultural sectors in China. More than half of the observed labor earnings gap between the two sectors can be attributed to the underlying productivity difference, and less than half of the gap can be attributed to sorting of workers. We also structurally estimate a general equilibrium Roy model and use it to quantify the effects of reducing migration costs on the observed sectoral productivity difference, migration, and aggregate productivity. If we implement a hukou policy reform by setting the hukou liberalization index in all regions of China to the level of the most liberal region, the observed agricultural productivity gap would decrease by more than 30%, the migrant share would increase by about 9%, and the aggregate productivity would increase by 1.1%. In contrast, in a partial equilibrium in which the underlying productivity difference does not change with migration cost, the hukou policy reform would reduce the observed agricultural productivity gap by only 9%, the migrant share would increase by more than 50%, and the aggregate productivity would increase by 6.8%.

Suggested Citation

  • Qingen Gai & Naijia Guo & Bingjing Li & Qinghua Shi & Xiaodong Zhu, 2021. "Migration Costs, Sorting, and the Agricultural Productivity Gap," Working Papers tecipa-693, University of Toronto, Department of Economics.
  • Handle: RePEc:tor:tecipa:tecipa-693
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    More about this item

    Keywords

    Migration cost; sorting; agricultural productivity gap; panel data; general equilibrium Roy model; China;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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