Behind the invisible wall: What determine wage differentials between urban and migrant workers in China

Abstract

Using a wider scope of cities data from 2008 survey of Rural-Urban Migration in China, this study employs a comprehensive aspect of explanatory variables to empirically estimate wage determination and decomposes the wage differentials between urban and migrant workers in the Chinese labour market. We find that differences in endowments, such as personal traits, geography, cohort, firm characteristics and industry type explain 85-89% of the wage differentials; however, it drops significantly to 42-60% if group membership, a likely proxy for the Hukou system, is considered. Among those explanatory factors, human capital proxies of personal traits are the crucial factors for wage differentials; moreover, compared to the urban workers the education resource-poor migrants have higher rates of return on human capital variables of work experience, height and health. The significant age cohort effect reflects better job opportunity and labour quality of new generations of migrants. Policy implications for institutional change to close the wage gap are also discussed. © Institute of China Studies.