The Hukou Impact on the Chinese Wage Structure

20 Pages Posted: 24 Apr 2017

See all articles by Christian Dreger

Christian Dreger

European University Viadrina Frankfurt (Oder); IZA Institute of Labor Economics; Chinese Academy of Social Sciences (CASS)

Yanqun Zhang

Chinese Academy of Social Sciences (CASS)

Multiple version iconThere are 2 versions of this paper

Date Written: April 2017

Abstract

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.

Keywords: Chinese economic transformation, wage premium, hukou reform

JEL Classification: J30, R23, C23

Suggested Citation

Dreger, Christian and Zhang, Yanqun, The Hukou Impact on the Chinese Wage Structure (April 2017). DIW Berlin Discussion Paper No. 1660, Available at SSRN: https://ssrn.com/abstract=2957531 or http://dx.doi.org/10.2139/ssrn.2957531

Christian Dreger (Contact Author)

European University Viadrina Frankfurt (Oder) ( email )

Frankfurt (Oder)
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Chinese Academy of Social Sciences (CASS) ( email )

Beijing, 100732
China

Yanqun Zhang

Chinese Academy of Social Sciences (CASS) ( email )

No.5 Jianguomennei Street
Beijing, 100732
China

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