Migration Of Surplus Labor In Rural China: Income Effects And The Causes

As a country with the largest population and the largest size of agriculture in theworld, China should put its rural labor migration into a central position in itssocio-economic development. Since the start of reform and opening up, a large scale ofmigration of agricultural labor has been going on in the vast area of rural China, eitherin the form of local cross-sectoral transfer or outward spatial migration. So far, themigrants have amounted to more than300million, a number as big as to rival any othersuch event ever occurring in the world in human history. This migration, undoubtedly,has played a key role in the fast growth for more than30years of the Chinese economy.However, the fast and large-scale migration also brought a host of economic and socialproblems. A most noticeable one of the problems is that with the increased mobility ofrural labor, an anomalous change emerged to the disparities between the rural areas andcities, as well as across regions of China, i.e., the disparities increased rather thandecreased--as suggested by logic and by the orthodox economic theory. While the issueof labor migration has long received much attention from the academic community, thisparticular anomaly in the relationship between migration and income distribution is stillinadequately responded to, let alone its possible causes.This thesis first gives a detailed description and quantitative analysis of surpluslabor and labor migration in rural China. After that, the thesis explores the thoughts onlabor migration in classic models of growth and development in order to find themechanisms relating labor migration to its income effects. Then based on the modelingtechnologies and the status quo of China, the thesis formulates a model of incomeeffects of labor migration in rural China--the extended Solow model with labormigration under unidirectional constraint(“LMUDC model”). This model, with theincorporation of drain of human capital, provides an effective explanation of the declinein the income effect of rural labor migration during the second period of reforms (theperiod of establishment of the socialist market economy system). Then the thesis goesfurther to examine the practical causes of the income effects of labor migration by wayof empirical studies from the perspectives of sectoral development, rural investment,and the migrational pattern. Lastly，counter measures are proposed from the theseperspectives for promoting labor migration in the current process of adjustment toChina’s urbanization and industrialization. The thesis arrives at the following conclusions:①In the theory of economic growth and development, the productive factor(s) orcomponent(s) related to labor and human capital must be incorporated so as toadequately account for the function and influence of labor migration. In the course ofrural labor migration, drain of human capital is inevitable, and this would cause anegative effect on the incomes of those retained in rural agriculture. Considering thatmigrants generally carry a higher level of human capital, the negative income effect iseven huger. Drain of human capital endangers agriculture and rural development.Without compensatory mechanisms to mediate the interests between employmentsectors, the socio-economic decline is inevitable in the rural areas.②Labor migration contributed significantly to GDP growth nationwide and onprovincial basis, in spite of a decrease in the contribution in the second period ofChina’s reforms. However, the impact of labor migration was unbalanced across sectorsand groups of people. Agricultural productivity was negatively affected; incomeincrease of the rural residents was by far smaller than that of the urban residents. Theresult: the disparities widened rather than shrank between agriculture and industry, andbetween the rural and urban sectors.③The causes of the decline in income effect of migration in the second period ofreforms of China come from neglect of agricultural development, lack in ruralinvestment and imbalance in the migrational pattern, etc. In order to boost the incomeeffect of migration in the current adjustment to China’s development mode, the threecauses should be duly attended to, and progress and breakthrough should be madetherein.The main innovations in this thesis include:①The thesis explores the state and conditions of surplus labor, surveys in depth thecourse of migration of rural labor in China since the start of reforms, and proposes anew alternative to measuring the scale of migration. A more complete and reliablemeasurement result is obtained by most possibly utilizing the information of theavailable publicized data and combining the newest research fruit from otherscholars(e.g. Cai and Wang,2010).②The thesis surveys in depth the thoughts on economic growth and development,with focus on the components concerning the effects of labor migration, and thenformulates a theoretical model to account for China’s atypical facts about the incomeeffects of migration (LMUDC model). The model assumes a constantly greater broad capital carried by out-migrants, so under the condition of the dual economy and theexternal imbalance, the internal steady state of the rural sector is unattainable.Out-migration is not Pareto improving since it worsens the wellbeing of the laborerswho are retained behind. To achieve the Pareto optimality, as well as social welfaremaximization, it is necessary to compensate the less migratable groups and the ruralareas. The model provides an economic basis for China’s current policy of “Industryreciprocates agriculture”,“Cities support the countryside” and “Unify rural and urbandevelopment”.③The thesis sets three propositions on the income effects of migration: with themigration of labor, if agriculture is not upgraded or fails to advance as rapidly as theindustrial or the service sector, the income effect of migration would decline; with themigration of labor, if rural per capita investment is not raised, or the aggregateinvestment shrinks sharply, the income effect of migration would decline; and, in thecourse of labor migration, if local migration and outward migration are unbalanced orthe pattern between them changes drastically, the income effect of migration woulddecline. These propositions are supported by empirical investigations. In testing the firstproposition, this thesis, using a panel data set since the start of reforms, decomposes thevariations in the relationship between migration and sectoral productivity by period,region and factor, where some significant imbalance is revealed. In testing the secondproposition, unlike the usual specification, the thesis uses two separate variables ofmigration--local and outward--in the regression, and obtains a more comprehensiveresult. The third proposition is derived from a thorough examination of the migrationalpattern changes and China’s rural development state; so it also serves as a conclusion onpolicies with clear practical orientation.④We collect various types of newest data on the Chinese economy spanning from1978-2010to run the econometric tests. Advanced econometric instruments areemployed to explore the income effects of labor migration and their causes. In the paneldata model, fixed and random effects and breakpoint are tested. In the multivariate VECmodel, the unit root and Granger causality are tested on the time series. These testsguarantee the robustness of the empirical results, and help to firmly support thepropositions put forth in the thesis.