Labor Mobility within China:Border Effects on Interregional Wage Differentials

Labor migration is institutionally restricted within China under the hukou system, China’sregistration system.However, what is the pecuniary impact of labor immobility oninterregional wage inequality? To answer this question, we derive a simple wage gapequation including educational attainment, market potential and provincial border indicators.The regressions based on city and sector-level data show that, other things being equal, thewage dispersions within Chinese provincial borders are significantly less pronounced thanthose among provinces.Such border effects on spatial wage differentials, which have beenshown to pervasively exist in all sectors considered in the present paper, reflect the distortionsgenerated by migration controls.Finally, we show that despite the recent hukou reformsaimed at relaxing the restrictions on population movement, border effects appear to persistedover the period 2003-2005.