A Numerical Simulation Analysis of hukou in China.pdfVIP

A Numerical Simulation Analysis of Hukou Labour Mobility Restrictions in China  John Whalley Department of Economics, University of Western Ontario National Bureau of Economic Research, Inc. NBER, Cambridge Center for Economic Studies - Institute for Economic Research CES-ifo, Munich Shunming Zhang School of Economics, Xiamen University August 26, 2006 Abstract We use numerical simulation methods to analyze the Hukou system of permanent registration in China which many believe has supported growing relative inequality over the last 20 years by restraining labour migration both between the countryside and urban areas and between regions and cities. Our aim is to inject economic modelling into the debate on sources of inequality in China which thus far has been largely statistical. We rst use a model with homogeneous labour in which wage inequality across various geographical divides in China is supported solely by quantity based migration restrictions urban rural areas, rich poor regions, eastern coastal central and western non-coastal zones, eastern and central western development zones, eastern central western zones, more disaggregated 6 regional classications, and an all 31 provincial classication . We calibrate this model to base case data and when we remove migration restrictions all wage and most income inequality disappears. Results from this model structure point to a signicant role for Hukou restrictions in supporting inequality in China. We then present a further model extension in which urban house price rises retard rural - urban migration. The impacts of removing Hukou restrictions on migration are smaller, but are still signicant. Finally, we modify the model to capture labour productivity dierences across regions, calibrating the modied model to estimates of both national and regional Gini coecients. Removal of migration barriers is again inequality impro