Essays in migration, trade and the labour markets

Abstract

Over the last thirty years, China’s economic growth has been remarkable. Although much is still unknown about the process leading to this growth, a rapid structural transformation has also taken place over last three decades. Internal migration is central to this transformation. Meanwhile, China also opened its goods market to global trade and gradually became a key player in the world economy. Trade liberalisation has had a major impact on the Chinese economy. Workers’ mobility and trade-led growth are connected and, indeed, trade and migration policies are often determined simultaneously. This thesis investigates how labour and goods markets frictions affect labour market outcomes in China. Specifically, it asks three research questions: (i) how do institutional restrictions to migration shape migration decisions in China?; (ii) does internal rural-urban migration affect urban natives’ wages and how is this relationship affected by migration policies?; and (iii) are the effects of trade liberalisation at the sectoral level, sectoral wage premia in particular, related to migration restrictions? To address the above questions, the thesis is organised as follows. Chapter 1 provides the background contextual information and motivation for the thesis. Chapter 2 examines the importance of migration restrictions in China by studying the role of the Hukou system in shaping migration decisions. Migration becomes costly in the context of the Hukou system as hukou prohibits migrants from accessing various social benefits in their actual destinations of residence. This chapter exploits a gravity equation modelling approach of migration stocks and a Bartik-type instrument and provides evidence that migration decisions are associated with economic factors such as wage and unemployment characteristics, with stronger effects in destinations where hukou restrictions are stronger. Also, migration restrictions can influence the relevance of other determinants of migration, such as public and amenity services in destinations. The results are robust across alternative estimation models. These findings suggest that internal migration is sensitive to Hukou policies, and migration restrictions are an important factor in understanding internal migration patterns in China. Chapter 3 examines the impact of an increase in migration from rural to urban areas on native workers’ wages in Chinese cities. Specifically, we exploit cross-city variations in local labour market conditions that arise from non-uniform Hukou reform ii implementations. The identification strategy exploits variations in the relaxation of the internal migration restrictions across cities, and variations in the pre-reform migration flows across cities between 2000 and 2005. We find that, on average, an increase in rural-urban migration increases the wages of urban workers, with the effect being higher for high-skilled urban workers. Using a shift-share instrument to further examine the effect of rural-urban migrants on native workers’ wages leads to similar evidence. Chapter 4 looks at the relationship between trade openness and inter-industry wage differentials in China. Taking advantage of a rich household survey dataset, this chapter first estimates the wage premium for each industry conditional on individuals’ characteristics. We then empirically assess the relationship between wage premia and trade openness. We find that trade openness has a positive effect on wage premia. Also, disaggregating sectors into tradable and non-tradable sectors shows that the positive effect of openness on the wages of the tradable sectors feeds into the wages of the non-tradable sectors. We show that the relationship between tradable and nontradable sectors increases with the migration restrictions caused by household registration system in China.