Labour market and wage inequalities between permanent rural migrants and urban-born residents in China

ABSTRACT

This study provides some of the first empirical evidence on the role of the labour market in determining individual-level wages and the consequent wage inequalities. Unlike traditional earnings equations that focus on human capital factors, this study follows recent wage theory, the Nash bargaining model, and finds that not only human capital but also the labour market are important factors in determining individual-level wages. Further, this study examines wage inequalities between urban-born workers and permanent rural migrant workers, who constitute a sizable part of all rural migrants in urban China but have been ignored in previous academic studies. Different from temporary rural migrants examined in previous studies, permanent rural migrants share the same citizenship rights and social welfare as urban-born workers. However, we still find that these permanent migrants (classified as talent, land, and ‘supported’ migrants) face disadvantages in acquiring high wages. Using a developed version of the two-fold Blinder–Oaxaca decomposition based on our theoretical model, we find that the wage inequalities between permanent rural migrants and urban residents are caused by both the workers’ education and labour market tightness, as well as the father’s employment status, housing prices, and other factors.

KEYWORDS:

• wage determinants
• labour market
• human capital
• permanent rural migrant
• urban-born residents

JEL CLASSIFICATION:

• J31
• J61

Acknowledgments

The authors are grateful to the anonymous referees, Akira Kawaguchi, Hiromi Ishizuka, Masahisa Fujita, Masayuki Morikawa, Fumio Ohtake, Masaru Sasaki, participants at annual meetings of the Japanese Economic Association and the Japanese Association for Chinese Economy and Management Studies, and RIETI Discussion Paper Seminar, for their helpful comments. English proofreading from Editage is also acknowledged. This study is a part of research results undertaken at RIETI. The views expressed herein are the authors’ own.

Data availability

Data can be downloaded from:http://cnsda.ruc.edu.cn/index.php?r=projects/view&id=34288661.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ These temporary rural migrants are generally low-skilled workers with full-time, year-round jobs; however, as they do not have a formal urban hukou, their children are not allowed to attend the same schools as urban children; therefore, they have to remain at their rural homes.

² In this theory, workers’ bargaining power is ‘labour’s share of the total surplus that an occupied job creates’ (Pissarides 2000, 16). It applies widely to all firms (not limited to firms with direct-wage bargaining).

³ For simplicity, this study ignores technological progress in the production function.

⁴ We do not use city-level ratio of job vacancies to job seekers to measure the labour market tightness because job vacancies are open to workers in both local and nearby cities, and labourers generally move freely across cities within a province in China. In addition, reliable data of city-level labour market tightness is not available. Hence, we believe that the provincial-level ratio of job vacancies to job seekers is the best index to describe labour market tightness.

Additional information

Funding

There is no funding detail to disclose.