Lecturer: Zhigang Li
Hukou and Inequality
• Question: How does a change in Hukou status
from rural to urban affect a person’s investment
in human capital and labor market performance?
– Do people who obtain an urban hukou late in their lives
do worse than those who obtain urban hukou earlier?
• Answering the question may help us understand:
– Urban-rural income differential
– Income differential between recent and early hukou
The Hukou System
• The implementation of the hukou system is
supported by the ration system established in
– Under the ration system, basic staples such as grain,
meat, cooking oil, sugar and cotton could be bought only
in state-run stores using ration coupons.
– Rural residents were excluded from the ration system
and were expected to be self-sufficient in food.
• Another important contributing factor to the
hukou system is the state control of urban
• Since 1990, the hukou system has become more
flexible. New types of residential registration
forms (administered by local governments) were
– Temporary residential permit
– Blue-stamp hukou (blue card): Mainly issued to investors,
buyers of property, and professionals, the blue-stamp
hukou functions more like the regular hukou.
– A direct purchase of an urban hukou also became
possible in recent years. Between 1990 and 1994, local
government sold about 3 million hukou at an average
price of 8300 yuan a piece.
– Rural hukou holders can now attend schools in urban
cities, but they need to pay fees and tuitions
• Chinese Household Income Project 1995
• All the urban individuals in the sample had urban
hukou in 1995, although they obtained it at
– Most of the individuals obtained urban resident status
within three years of birth. About 20% received urban
hukou after 15 (middle school).
• The policy denies the rural population access to
quality education, resulting in lower educational
attainment by rural residents relative to their
• The hukou system deprives the rural population
access to urban employment that rewards
education more than does rural employment.
• By differentiating opportunity structures for
rural and urban population, the hukou system may
be a major cause of rural-urban disparity.
Impact of Removing Hukou
(Whalley and Zhang, 2004)
• Method: Calibrate an economic model
to base case data and then remove
migration restrictions. Inequality
changes can then be calculated.
Experiment 1: Remove
– Significant migration from rural to
urban (200-600 million).
– Rural wage increase. Urban wage fall. No
inequality in equilibrium.
– Total output increase slightly.
Experiment 2: Allow for
• Inequality decrease after the
migration barriers are abolished.
• Significant inequality remains.
Experiment 3: Allow for
Housing Prices to Change
• People migrate from poor to rich regions.
• The migration magnitude is relatively small
because housing prices increase in region
• Inequality may increase in regions with
migrants due to increased housing prices.
Occupational Segregation between
Natives and Immigrants in Hong Kong
(Liu et al., 2004)
• Hong Kong is a society of immigrants
– In 1996, 60% of HK workforce were native born. About
33% are immigrants from mainland China.
– Between 1898 and 1950, Chinese citizens could freely
enter and leave HK.
– Between 1950 and 1979, strict rules were enforced
forbidding people migrating to HK, but people who
successfully reached HK will be allowed to stay.
– After 1979, illegal migrants to HK were sent back.
Theory of Occupational
• Poor job matching for new
• Schooling of immigrants is not the
same as schooling of natives.
• Discrimination against immigrants.
Empirical Findings I
• If the immigrants were to face the same
occupation structure as the natives:
– The proportions of immigrants who would be
managers/administrators, professionals and associate
professionals (about 5%), clerks and plant operators
– Immigrants who would be service, craft or elementary
workers would fall.
Empirical Findings II
• As the duration of residence rises from less than
5 years to more than 20 years, occupational
segregation declines from 22% to 5%.
• Occupational segregation is found to be non-
existent for immigrants who came to HK before
10 years old. For immigrants who came to HK when
they were over 20 years old, occupational
segregation is around 15% of wage differentials.