DP11657 China's mobility barriers and employment allocations

Author(s): Liwa Rachel Ngai, Christopher Pissarides, Jin Wang
Publication Date: November 2016
Date Revised: December 2017
Keyword(s): China hukou, employment allocations, land policy, mobility barriers, social subsidies
JEL(s): J61, O18, R23
Programme Areas: Development Economics, Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=11657

China?s hukou system imposes two main barriers to population movements. Agricultural workers get land to cultivate but run the risk of losing it if they migrate. Social transfers (education, health, etc.) are conditional on holding a local hukou. We show that the land policy is a more important barrier on industrialization. This distortion can be corrected by giving property rights to farmers. Social transfers dampen mainly urbanization. We calculate that the two policies together lead to overemployment in agriculture of 6.7 points, under-employment in the urban sector of 6.3 points and have practically no impact on the rural non-agricultural sector.