SMU SOE Seminar (Apr 7, 2017): The Long and Short of Trade and Migration Reforms in China

This paper studies short and long run effects of trade and migration costs on human capital accumulation, skill premium, income inequality and aggregate productivity in China. We construct a multi-sector multi-region dynamic general equilibrium model featuring internal and international trade, and migration across regions and sectors by workers heterogeneous in their age and skill levels. We model optimal decisions on human capital accumulation and location choices in the presence of both trade and migration costs. We explicitly incorporate China’s Hukou registration system into the model. The Hukou system imposes differential costs on migrant workers with different age and skill levels: First, migrant workers who do not have Hukou status in the locations they work face enormous costs of getting access to local public services such as health care, child care and schooling for their children. This implies that the migration costs are particularly high for workers who are married with children. As a result, the system discourages permanent migration in favour of temporary migration. Second, it is relatively easier for high-skilled workers to receive Hukou status in their migration destination. This implies that high-skilled workers are more likely to migrate permanently than unskilled workers. The migration reform in recent years relaxed the restriction on migrant workers to work in cities, but has done little in terms of reducing the impact of Hukou status on getting access to public services. We call this kind of reform partial migration reform.

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