The removal of institutional impediments to migration and its impact on employment,production and income distribution in China

The major objectives of this article are to identify the inter-regional and inter-sector wage differentials that are attributed to the institutional restriction on labor mobility (the hukou system), and then to simulate the impact that the removal of the restriction would have on the Chinese economy. Our simulation results reveal that the removal of the hukou system would be accompanied by a massive migration to cities. The degree by which the labor force would decrease with the removal of the hukou system is higher in rural industry than in agriculture, suggesting that the absence of job qualifications would prevent the vast majority of farmers from changing their occupations. Should off-farm employment opportunities in cities for rural migrants be rationed, the elimination of the hukou system would exacerbate rather than cure the problem of unemployment in urban labor markets, which would adversely affect distributional consequences at the national level.

Junichi ItoEmail: