Four Alternative Estimates of Surplus Labor and Their Influence on Urban-Rural Inequality in China

Abstract

This study examines the effect of agricultural surplus labor on the urban-rural income gap in post-reform China. Using 29 Chinese provincial data from 1988 to 2011 and applying simultaneous equations, this study finds that surplus labor is an important factor for the increased inequality between urban and rural areas, and thus confirms Lewiss dual economy theory. Four different methods, namely, the classical method, international standard structure comparison, the sown-land-to-labor-ratio method, and the arable-landto-

labor-ratio method, are used to estimate agricultural surplus labor. Although the surplus labor forces estimated by the four methods significantly differ in their magnitudes (from 14 million to 80 million), their influence on urban-rural inequality is the same and robust. Provinces with more surplus labor have wider urban-rural income gaps, implying that the reduction of surplus labor is a fundamental means to reduce urban-rural inequality.