Effects of Labor Out-Migration on Income Growth and Inequality in Rural China

Abstract

Using the 1995 survey of rural household income, this paper attempts an empirical analysis of interactive relations between rural labor migration and income distribution, with emphasis on the effects of rural-urban migration on income growth and income distribution in rural China. The results of our analysis indicate that rural migration makes a contribution to the growth of rural income, not only by raising the labor productivity of migrant workers but also by permitting more efficient allocation of the remaining, non-migrating workers. Faster growth of rural household income resulting from more rural workers moving into urban areas could narrow the urban-rural income gap. Using two different approaches to estimating the contribution of rural migration to changes in rural income inequality, we find that rural migration at least does not cause deterioration in income distribution, and might improve it. Remittances from out-migrant workers have definitely played a role in reducing income differentials among rural households. Our simulation analysis also indicates that the distribution of rural household income in 1995 was more equal than ti would have been in the absence of rural out-migration. However, at the provincial level, we find some evidence that rich and poor provinces experience quite different effects of rural migration on income inequality.