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Pacific Economic Review, 19: 4 (2014)
doi: 10.1111/1468-0106.12046
pp. 401–422
PART-PEASANTS: INCOMPLETE RURAL–URBAN
LABOUR MIGRATION IN CHINA
YINYIN CAI* Southeast University
YEW-KWANG NG Nanyang Technological University
Abstract. The institutional settings in China, including the land allocation system and the household
registration system, lead to a rural–urban labour migration pattern that differs from that in other
countries. Individual peasants’ labour is often split (typically over different times of the year) into
two or more parts as a result of institutional factors. Individuals work both as peasants on the land
and as temporary migrant workers in urban areas (or in rural non-agricultural sectors). We examine
this issue using province-level panel data. The present study provides a new interpretation of the
phenomenon of labour shortages in coastal cities and rising rural migrant wages in China in recent
years, and discusses whether the Lewisian turning point has been reached. Under part migration, the
rural labour supply to urban areas is smaller than would be the case with full migration of workers
to urban areas, so that the Lewisian turning point occurs earlier. This finding has important policy
implications for China’s future development.
1. INTRODUCTION
China’s ongoing economic growth has attracted much attention worldwide.
Over the past decade China’s emergence as the factory of the world and as the
largest receiver of foreign direct investment has profoundly influenced global
trade patterns and the competitive landscape. These successes stem partly from
China’s comparatively low wage rates for workers. However, this advantage
may eventually be eroded, with wage rates increasing steadily in China (Yang
et al., 2010) and the ‘labour shortage’ that has arisen in coastal cities since 2005
(Zhang et al., 2011). Many argue that China has reached the ‘Lewis turning
point’ (Lewis, 1954), where rural surplus labour is depleted to such a level that
continuing industrialization cannot be supported by cheap labour supply
(Huang, 2010; Yao and Zhang, 2010; Li et al., 2012).
Empirical studies on this topic tend to follow two approaches: (i) the estimation of total labour supply and demand; and (ii) the estimation of rural migrant
wage rates. For instance, Cai and Wang (2008) use an official estimate of ‘labour
requirements’ to argue that the pool of surplus labour in the Chinese countryside is now small. Zhang et al. (2011) find a clear rising trend in real wage rates
and predicate that the era of surplus labour is over. Knight et al. (2011) produce
evidence of simultaneous surplus labour in rural areas and rising rural migrant
wage rates in urban areas.
It is difficult to define and quantify rural surplus labour (Cao and Tisdell,
1992). With an additional assumption of negligible transfer costs, the existence
*Address for Correspondence: School of Economics and Management, Southeast University,
Jiulonghu Campus, Nanjing 211189, China. Email: [email protected]. We wish to thank two anonymous referees for useful and constructive comments.
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Y. CAI AND Y.-K. NG
of rural surplus labour implies that non-agricultural sectors will have an unlimited supply of labour at a constant wage rate. In contrast, labour shortages in
coastal cities and rising wage rates in non-agricultural sectors suggest the disappearance of surplus labour in agriculture (Cai and Wang, 2010). Normally, a
fully market-oriented economic system provides financial incentives for peasants to transfer from farming to non-farming activities and from rural to urban
areas. The transfer of surplus agricultural labour implies a relative decrease in
the agricultural population. Typically, when a peasant transfers from the agricultural sector he or she will be committed to another occupation, and no longer
engage in agricultural production. This transfer is ‘complete’ for the individual.
Unfortunately, off-farm opportunities are inhibited by policy and institutional barriers in China, in contrast to a typical developed country. Without a
free and open market, peasants do not have complete freedom to choose their
occupations and places of residence (Cao and Tisdell, 1992). Given the difficulties encountered by rural residents in China in attaining permanent residence
status in urban areas, a substantial portion of the labour flow is temporary
rather than permanent (Zhao, 1999). China’s land allocation policy and household registration system effectively discourage rural households from moving
completely out of agricultural production and away from their area of legal
residence (Hare, 2002). The household registration system still discriminates
against migrant workers, who normally receive only half of the wages of their
urban counterparts. The differences in social welfare benefits are even greater
(Huang, 2010).
Labour migration is a strategy used by rural households in economically
impoverished areas to both increase and diversify their income (Hare, 2002).
Although many peasants in China are (or are now more) likely to transfer from
agricultural jobs to non-agricultural jobs, many of them have not really left the
land. Due to institutional factors, peasants have an incentive to continue to
engage in farming part time (Brosig et al., 2009). Individuals work on the land and
as temporary migrant workers in urban areas over different periods of the year.
If China’s rural–urban labour migration is, indeed, different from what is
typical in other countries, the findings of many studies (based on the conventional
wisdom that the labour transfer is considered ‘complete’) may be weak. In the
present paper we attempt to clarify an essential aspect of China’s rural–urban
labour migration: Instead of complete migration, the labour of an individual
peasant is split (perhaps over different times of the year) into two or more parts.1
This may provide a new element in interpreting the phenomenon of China’s
labour shortages in coastal cities and rising rural migrant wages in recent years,
and in determining whether the Lewisian turning point has been reached. In
particular, we argue that, under part migration, rural labour supply to urban
areas is smaller than would be the case with complete migration, meaning that
the Lewisian turning point occurs earlier. The rest of the paper is organized as
follows. In Section 2 we briefly describe some institutional reasons for incomplete
rural–urban labour migration. Section 3 presents a simple theoretical model.
1
This topic is partly discussed in the literature (see Ortiz, 2002; Knight et al., 2011).
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Section 4 provides a descriptive analysis and a multivariate regression analysis to
further test incomplete rural–urban labour migration. Section 5 concludes. Data
sources and adjustment procedures are described in the Appendix.
2. INSTITUTIONAL REASONS FOR INCOMPLETE RURAL–URBAN
LABOUR MIGRATION
There are some institutional factors that have hampered the full transfer of
peasants to full-time urban work; instead they have led to peasants taking on
multiple occupations (i.e. working both on the land and as temporary migrant
workers in urban areas). The undertaking of multiple occupations (and the
consequent failure to transfer fully) is peasants’ response to institutional factors
(including land policy, the hukou/household registration system and agricultural
subsidies) and market conditions.
2.1.
The household responsibility system
The household responsibility system (HRS) was introduced in rural China in
1979 and by the end of 1983 it incorporated most of the country’s farming
households (Lin, 1992); that year the change from the collective system to the
individual household-based farming system was largely complete. This marked
a radical change in property rights and organization in agriculture, and, as a
basic institutional arrangement for land ownership and an organizational form
of agricultural production, the HRS has been retained until now. However, the
HRS has not led to fully decentralized decisions for peasants: land ownership
remains vested in the village. The literature on the HRS and Chinese agricultural
growth is extensive (e.g. McMillan et al., 1989; Fan, 1991; Lin, 1992). Few
researchers, however, have attempted to link these topics to the failure of
peasants to transfer fully from agricultural jobs to non-agricultural jobs. Under
the HRS, land is divided into small plots and the production unit is the household, which has a low level of specialization. Given the typically small plot sizes,
agricultural machinery often cannot be used, leading to considerable labour
demand and tying peasants to the land. As a result, although peasants in China
are now more likely to transfer from agricultural jobs to non-agricultural jobs,
many have not completely left the land.
2.2.
The hukou system
The hukou (household registration) system is another important policy for peasants in China, which was established in 1955 and is still in place today. On its
establishment, households were registered in the locale where they resided and
were categorized as either agricultural or non-agricultural households. With a
sharp differentiation of rights and privileges and extremely stringent conditions
for converting from rural to urban status (Wu and Treima, 2004), the hukou
system has created a pronounced distinction in socioeconomic entitlements
among Chinese citizens (Chan and Zhang, 1999).
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Y. CAI AND Y.-K. NG
Today, the location of an individual’s household registration still makes a
significant difference. Urban residents are entitled to social welfare benefits,
such as medical insurance, pensions, unemployment support and free (compulsory) education, although most of these systems are still underdeveloped.
Migrant workers cannot access these benefits, even if they have been working in
cities for years. Existing registration arrangements explain why rural Chinese do
not transfer to urban work alone. On the one hand, it is difficult for peasants to
change their agricultural status and to access the same services as urban residents, even if they have full-time jobs in cities. On the other hand, peasants
cannot or will not completely give up the land, because of the HRS and the
hukou system. Hence, an optimal choice may often be working part time in a city
and continuing agricultural production in a rural area.
2.3.
Agricultural taxes (fees) and subsidies
Agriculture taxes have been levied since the establishment of the People’s
Republic of China and an agricultural tax law was formally put into force in
1958. This tax was typically levied as a percentage of the production value of a
given land area, based on historical prices and yields. The average tax rate
(including agricultural tax surcharges) as a share of actual agricultural production value fluctuated between 2 and 15% from year to year. In 1950, revenues
from agriculture tax made up almost 40% of China’s total tax revenue. This
share has been declining continuously, falling to approximately 5.5% in 1979
and to less than 1% by 2004 (Lei, 2012). The central government enacted the
tax-for-fee reform in 2002 that abolished local fees levied on individuals and
rural households in favour of a single agricultural tax. In addition, the central
government removed the agricultural tax in 2006.
For Chinese farmers who have for centuries been paying taxes based on their
number of family members and their crop-land acreage, the new policy is a
welcome relief.2 Besides the tax exemption, the Chinese Government has also
implemented a series of agriculture-friendly policies to boost the rural economy
and increase farmers’ income, including direct subsidies for grain growers and
more subsidies for farmers to buy improved crop strains, agricultural machinery
and tools (Xing, 2005). The aim of these subsidies is to reduce the input costs to
farmers and to prevent farmers from reducing the use of industrial materials as
intermediate inputs of agricultural production when their prices are high.3 The
2
We regard the absence of any tax/rent on the use of land as a distortion, although it could offset
other distortions; it is still better to remove other distortions such as the control of agricultural prices
and limits on land use.
3
Normally, the government thinks that farmers will reduce the use of intermediate inputs (consisting mainly of industrial products like fertilizers) of agricultural production when their prices are
high, and agricultural production will be reduced. To stabilize agricultural production, the government will provide some subsidies to peasants when the prices of these inputs rise. These kinds of
subsidies are usually temporary. In fact, they are related to the government’s price control of
agricultural products, with no price control of industrial materials used as intermediate inputs for
agricultural production.
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major instrument of subsidy is linked to purchased farm inputs such as fuels
and fertilizers. This subsidy is officially referred to as the ‘comprehensive direct
subsidy to agriculture production materials’ by the Chinese Government.
With the abolishment of agricultural taxes and the introduction of agricultural subsidies, farmers have been more reluctant to leave their land.
2.4.
Market conditions in the presence of government intervention
During the reform period, the government focused on the reform of product
markets, including abandoning policy interventions in domestic markets and
liberalizing trade in goods and services. Today, prices of more than 95% of
products are determined in free markets. In contrast, factor markets, including
markets for labour, capital, land, energy and the environment, remain highly
distorted. For instance, many urban jobs are available only to those with local
urban residency; discrimination against migrant workers is common, with big
differences existing in remuneration and working conditions. Outside the property sector, land prices are artificially determined by the government. For those
who can get easy access to factors of production, these distortions generally
push factor prices and, therefore, production costs below levels that otherwise
would be present in a free market. However, the effective prices for other people
are made higher by these distortions.4
China is known for its abundant cheap labour, a key factor behind its success
in labour-intensive manufacturing exports. However, labour costs in China
may be distorted, for two interrelated reasons: the segmentation of rural and
urban labour markets, and the underdevelopment of social welfare systems. The
labour costs of migrant (rural) workers are cheaper than those of local (urban)
workers.
It may be supposed that because many price controls for agricultural products
are in the form of price ceilings (such as tobacco and grains) rather than price
supports, they should encourage or at least not discourage peasants from
becoming full-time urban workers. The situation is more complicated. The
lower prices for agricultural products discourage peasants from becoming largescale producers through the use of land merging and large tractors. This, in fact,
locks more peasants into farming, at least part time. If product prices were
higher, some peasants would be able to buy land from others (or even just the
usage rights), releasing the sellers to migrate fully to urban areas.
According to the above, the undertaking of multiple occupations is the
response of peasants to institutional factors and market conditions. Instead of
complete migration, the labour of an individual peasant is often split (perhaps
over different times of the year) into two or more parts.
4
Therefore, in our view, it makes more sense to liberalize agricultural prices rather than cancel
agricultural taxes.
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Y. CAI AND Y.-K. NG
3. A SIMPLE MODEL
The above discussion can be formalized by a simple model of a representative
peasant household. For simplicity, we assume that all members of the representative peasant household are regarded as a person whose name is Zhang San.
First, we consider the farm production of the representative peasant household. Output, y, is produced with land, R, labour, L, and other inputs, xi,
according to a production function:
y = f (R, L, x1, x2, , xn ).
(1)
The prices of land, labour and other inputs are denoted as pR, pL and pi,
respectively. The total cost for this representative production unit by Zhang San
is given by:
n
c = pR R + pL L + ∑ pi xi .
(2)
i =1
Denoting the price of y as py and the profit of his farm production as π, we
have the profit function:
π = py y − c.
(3)
Second, we consider Zhang San’s labour (time) allocation. We assume that
Zhang San’s utility function depends on his total income (from his own farm
and from working outside) and leisure only. He does not care whether he works
for himself or for others.5
Thus, denoting m = (money) income and λ = leisure, he maximizes
U ( m, λ ) ,
(4)
m = py y − c + wLm
(5)
λ = 1 − L − Lm,
(6)
where
where w is the prevailing market wage rate which Zhang San takes as given, and
Lm is the amount of time he works in non-agricultural sectors. L is the amount
of time he works for his own farm; λ is his leisure time. This is thus formulated
as a simple maximization problem and he chooses xi for all i, L and Lm to
maximize U, giving the following first-order conditions:
5
This simplifying assumption is not really needed as utility maximization by an owner–manager
implies profit maximization for his or her firm/farm with the appropriate definitions of wages and
profits (see Ng, 1974).
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∂y ⎞
py ⎛⎜
= pi
⎝ ∂xi ⎟⎠
(7)
for all i, the condition for profit-maximization usage of all intermediate inputs.
py
( )( )
∂y ∂U
∂U
=
,
∂L ∂m
∂λ
(8)
the optimal income/leisure condition for working in one’s own farm.
The peasant allocates his total available amount of time (normalized to one
unit) between leisure, λ, time working on his farm, L, and time working for
outside wage income, Lm. The optimal balance between L and Lm requires the
∂y
; the optimal balance between L and λ requires
first-order condition pL = py
∂L
∂y
, the value of marginal product of labour, in equation
equation 8. Thus, py
∂L
8 may also be replaced by pL(= w):
( )
( )
∂U ⎞ ∂U
w⎛
,
=
⎝ ∂m ⎠ ∂λ
(9)
the optimal income/leisure condition for working outside.
∂y
From equations 8 and 9, we may also derive: py ⎛ ⎞ = w , the max-profit
⎝ ∂L ⎠
self-employment condition. Assume that the amount of land, R, is predetermined for Zhang San (such as by the village leaders (see Benjamin and Brandt,
2002)). For any given amounts of other inputs used, we can adopt a geometric
description for the determination of labour or time allocation.
In Figure 1, the fixed amount of time (e.g. 1 year) is measured along the
horizontal axis. This total amount of time, normalized to one unit, could be
used for working in his own farm, working in the market, or for leisure:
∂y
1 = L + Lm + λ. py ⎛ ⎞ represents the value of marginal product of labour;
⎝ ∂L ⎠
∂U ∂U
represents the marginal value of leisure (with the amount of
and
∂λ ∂m
leisure measured from right to left). From the viewpoint of a single household,
the market price of labour, pL, is given in a competitive market, with w as the
prevailing wage rate. pL can be found by making the dotted horizontal price line
in Figure 1 passing through w. The corresponding value of the vertical axis will
be pL.
Because we are analysing the situation of multi-occupational choices, we may
assume that the value of the marginal product of Zhang San’s labour if he
spends all non-leisure time working in his farm is lower than the prevailing wage
rate, w. This is also likely to prevail in most cases in China given the small plots
of land. Then, Zhang San can choose how much time to spend working (either
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py
Y. CAI AND Y.-K. NG
∂U ∂U
∂l ∂m
∂y
∂L
w
L
Lm
l
Total time (labor)
Figure 1. Leisure–income choice and labour allocation
on his own farm or outside) and how much leisure time he should have. Given
this leisure–income choice, the amount of time available for work is given at
L + L m.
Let υ denote the wage income of Zhang San outside his own farm. We have:
υ = wLm.
(10)
Simultaneously, Zhang San receives an income (consisting of both his
notional farm wages and profits) that depends on farm production given by
η = py y (R, L, x1, x2, , xn ) − e (R, x1, x2, , xn ) ,
(11)
where wL (the amount of wages Zhang San notionally pays himself) is not
included in the expenditure function, e (the expenditure for farm production of
Zhang San); it is included in η. To quantify the amounts of these two types of
labour, we introduce a concept to analyse the problems associated with multiple
occupations: the degree of multiple occupations (DMO). Suppose θ denotes
Lm
, 0 ≤ θ ≤ 1, where L denotes the
DMO for any peasant, then we have θ =
L + Lm
labour devoted to agricultural production (the quantity of farm labour), Lm
denotes the peasant’s quantity of labour in non-agricultural sectors (the outside labour market). A θ closer to 1 implies that more labour is allocated to
non-agricultural production, and a θ closer to 0 implies that more labour is
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INCOMPLETE RURAL–URBAN LABOUR MIGRATION
409
allocated to agricultural production. θ = 1 means that the peasant no longer
engages in agricultural production, and θ = 0 means the peasant is a pure
peasant. However, data for the relevant amounts of θ are not available so we use
a proxy for θ:
θ=
Lm
υ
≈
.
L + Lm υ + η
(12)
The approximate equality above needs not hold exactly unless the hourly
income from working on the land is the same as that for working outside.
However, we are mainly concerned with the proportionate allocation of labour
between these two main categories and the changes in this proportion. Hence,
approximation should be acceptable. The last expression in equation 12 is an
important expression for our empirical study, because the data for υ (outside
labour income) and η (agriculture income) are easily obtained.
∂y
⎛ ∂y ⎞
= pi , py ⎛ ⎞ = w , we have an equation for L,
Since py ⎜
⎝ ∂L ⎠
⎝ ∂xi ⎟⎠
L = g ( py, w, pi , L ) .
(13)
Equation (13) implies that the effect of a change in prices or a change in wage
rates is to change the quantity of farm labour (L, which is allocated for agricultural production). This can, therefore, be used to provide a measure of DMO
attributable to the change in prices of input and output vectors and the increases
in the prevailing wage rates.
Obviously, equation 13 has a price component. py is the output prices vector,
which is determined by the agricultural product market. The price indices for
food may be appropriate for measuring py. pi is the other input prices vector,
except land and labour, and the price indices of agricultural means of production may be appropriate for measuring pi. Under the HRS, agricultural taxes
(fees) might be an important influence on L. In regards to agricultural taxes, a
geometric presentation is useful:6 see Figure 2, where r represents the agricultural tax rate.
In the presence of agricultural taxes, the net-of-tax value of marginal labour
∂y
product by Zhang San, py
(1 − r ) , will shift downward at every point. There∂L
fore, the agricultural tax will increase the degree of peasants’ multiple occupations, because ΔLm > 0. The tax makes a peasant less willing to work in
agriculture and more willing to supply labour to the city (non-agricultural
sectors). The removal of taxes and the subsidies, the hukou system and the land
policy have the reverse effect of encouraging the peasants to keep working on
the land.
6
In our opinion, the household responsibility system (HRS) in contemporary China is similar to
share tenancy (sharecropping). The peasants are the tenant and the state is the land owner. A portion
of every output unit produced is taken away as the agricultural taxes (fees) by the land owner
(government). This is no longer the case as the agricultural tax was abolished in 2006.
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410
py
Y. CAI AND Y.-K. NG
∂U ∂U
∂l ∂m
∂y
∂L
py
py
∂y
(1−r)
∂L
∂y
∂L
w
L
ΔLm
Lm
Total time (labor)
l
Figure 2. Agricultural taxes and labour allocation
The undertaking of multiple occupations by peasants may lead to an early
and distorted Lewisian turning point. Let us assume that the total population
working in agriculture is N, and everyone has a given amount of labour L + Lm
at the wage rate ŵ (here, we assume, consistent with the Lewisian analysis, that
the prevailing market wage rate, w, equals the minimum subsistence level of
wages, ŵ). The market labour supply in the rural sector (to both agricultural and
non-agricultural production) is N(L + Lm). However, according to traditional
analysis assuming full migration, if N*, the number of peasants working fulltime in agricultural production, just satisfies the demand for labour in the
agriculture sector, the amount of labour supplied in the rural sector to nonagricultural production is (N − N*)(L + Lm).7 Accordingly, the Lewisian turning
point will emerge at a point when market demand for non-agricultural labour at
ŵ equals NLm < (N − N*)(L + Lm), as shown in Figure 3. This figure shows the
7
In fact, it seems more appropriate that N represent rural labour, rather than the ‘total population
working in agriculture’. To compare two types of rural–urban labour migration, we denote N as the
total population working in agriculture. If rural–urban labour migration is complete, it implies that
N − N* people transfer to the non-agricultural sector. In this mode, the main body of transfer is
population rather than labour. In contrast, if rural–urban labour migration is incomplete, it implies
that the main body of transfer is labour rather than population. It would be N persons transfer a part
of labour (Lm) to the non-agricultural sector. If we denote N as the rural labour, it will be inappropriate in that the implication is incomplete. Moreover, Lm here refers to non-agricultural labour; it
contains rural labour supply to the urban sectors and those working in rural non-agricultural
production.
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INCOMPLETE RURAL–URBAN LABOUR MIGRATION
Wage rate
D1
D2
D3
411
S
w3
ŵ
(N−N*)(L+Lm) Quantity of labor
Figure 3. Lewisian turning point in the absence of institutional factors
market supply of rural labour outside agricultural production (mainly to the
urban areas) and the market demand for such labour.8 In Figure 3 we assume,
consistent with the Lewisian analysis, that a minimum subsistence level of
wages, ŵ, is needed to induce the potential excess amount of labour (Lm in
Fig. 1) to be effectively supplied to the urban sector. Thus, the market supply
curve S has a horizontal section at ŵ.
A remarkable difference between multiple occupations and labour transfer
from one sector to another is this: The former implies that an individual peasant
is divided into two or more parts and inputted in both the rural and urban
sectors;9 the latter means that some peasants transfer to the urban sector and
engage in a new job, and an individual person is not divided between two or
more jobs.
With incomplete rural–urban labour migration, the amount of labour surplus
in the agricultural sector may be different. At L, Zhang San’s farm production
can achieve profit maximization, and surplus labour for him is Lm at the wage
rate ŵ. If N is composed of people like Zhang San, the labour supply from the
rural sector to the urban area is NLm. Because of lower specialization and
inefficiency, NLm will be less than (N − N*)(L + Lm). In what follows we discuss
the concept of an effective labour supply. Having multiple occupations
may reduce the effective labour supply in two ways. First, when switching
from one occupation to another one may incur costs of job conversion. Second,
gains from specialization are not exploited. Because workers with multiple
occupations need to participate in different production activities, they hardly
8
More accurately, the market demand shown in Figure 3 is the total market demand in urban areas
for labour from the rural areas, and the total market supply of rural labour to the urban areas
(ignoring the minor non-agricultural production in the rural areas).
9
Although the rural areas also provide some non-agricultural jobs, most peasants seeking such jobs
over the past one or two decades have migrated (either fully or partly over certain periods of the
year) to urban areas. Thus, for simplicity, we ignore the minor non-agricultural employment in the
rural areas.
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Y. CAI AND Y.-K. NG
concentrate on any particular job. Hence, the view of NLm < (N − N*)(L + Lm)
may be reasonable. There are a number of reasons accounting for this.
First, the degree of specialization (inclusive of learning-by-doing effects) is
lower under multiple occupations, reducing the productivity of labour in the
rural sector, leading to the use of more labour for any given level of output.
Second, because the mobility of temporary workers is very high, employers
have low incentives to invest in the training of these workers, leading to low
labour productivity and a reduction (in comparison to what would have been)
in effective labour supply. Third, the costs of transporting workers between
rural and urban areas are not only high in money terms, but also high in
terms of time, reducing the availability of the amount of labour time for actual
working.
In addition, the value of N* will be lower in the absence of institutional factors
(including the land policy, the hukou system and agricultural subsidies). First,
the small plot of land allocated to each peasant household and the absence
of full ownership (hence, the difficulties in buying and selling of land) makes
efficient large-scale production with large tractors difficult. This lowers productivity per worker and locks a great deal of labour into the land. Second, the
hukou system discourages peasants from migrating fully to cities and the entitlement to land under HRS encourages them to remain, at least partly, as
peasants. Third, agricultural subsidies and the cancellation of the agricultural
tax in 2006 further encourage peasants to remain on the land. Consequently, the
Lewisian turning point will emerge early, at point NLm, as shown in Figure 4.
However, the point NLm is not the Lewisian turning point that would occur in
the absence of certain institutional factors (including land policy, the hukou
system and agricultural subsidies).
Under part migration (incomplete labour migration of individuals, with
peasants working both in agricultural and non-agricultural sectors concurrently), rural labour supply to urban areas is smaller than that under complete
Wage rate
w3'
D2
D1
D3
S'
S
D'2
w3
ŵ
NLm
Quantity of labor
Figure 4. Lewisian turning point with incomplete rural-urban labour migration
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INCOMPLETE RURAL–URBAN LABOUR MIGRATION
413
migration.10 Therefore, the institutional factors that discourage peasants from
migrating fully to urban areas will inhibit economic development in China in the
future.
4. EMPIRICAL ANALYSIS
The main purpose of the theoretic model in Section 3 is to explain the mechanism of peasants’ undertaking of multiple occupations. Under the given conditions (including HRS and hukou system), peasants tend to choose part-time
farming. They work both as a peasant on the land and as a temporary migrant
worker in urban areas (or in rural non-agricultural sectors). If the theoretic
model is is consistent with the practical situation, we may observe (or capture)
some empirical macroeconomic phenomena as described (or predicted) in the
micro-model.
This section focuses on illustrating two issues:
1 The part-peasant scenario is widespread in China. Individuals divide their
time working on the land and as temporary migrant workers in urban areas.
2 We demonstrate that China is already at or past the turning point NLm in
Figure 4. This is still a Lewisian turning point, except that it is reached earlier
due to the absence of full migration.
Data on peasants’ income is sourced from the Organization of Rural SocioEconomic Survey; these data are reported in the China Rural Statistics Yearbook. The use of this data to calculate DMO is appropriate for the following
reasons:
1 In each province, rural households were randomly chosen.
2 The subjects of the survey are members of the rural resident population who
normally live in the rural home for the whole year or at least more than
6 months in a year and are integrated with people in the locality. However, the
definition of ‘resident population’ is not followed very strictly by the statistical
bureau as those who return to work on the farm only during busy times may
be included even if they work away for more than 6 months. Government
employees and retired persons living in the local households are included, but
those living elsewhere are not.
3 The incomes of the subjects surveyed are classified into four types: wage
incomes, household business incomes, transfer incomes and asset incomes.
Wage incomes denote incomes from selling labour by rural residents
employed by units or individuals (both in urban areas and in rural areas).
Household business incomes denote incomes of rural residents from working,
planning and managing household business units, mainly in agricultural production. Thus, the survey data for provincial peasant incomes provided in the
10
However, we are not concerned with other possible reasons for reductions in the labour supply
such as population aging (as analysed by, for example, Peng, 2008).
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Y. CAI AND Y.-K. NG
Degree of multiple occupations
1.0
0.8
0.6
0.4
0.2
0
0
10
20
30
Province
Figure 5. Degree of multiple occupations (DMO) across the provinces
China Rural Statistics Yearbook may be used to reflect the peasant incomes
of the representative peasant household of that province, consistent with the
model here.
Consequently, according to equation 12, we calculate the θ of peasants for
31 provinces in mainland China during 2001–2010, as shown in Figure 5,
where θ = Wages Income/(Wages Income + HPCNI)11 and HPCNI = Household per Capita Net Income from Agricultural Production and Other Correlative Sources.
From Figure 5, we can see that the DMO of many provinces are higher than
0.2 in most of the past decade (2001–2010), with the average around 0.4 (0.3917
to be exact). For many provinces, a significant proportion of peasants’ income
is wages from outside work. In other words, at the provincial level, the undertaking of multiple occupations is widespread. This implies that the labour of an
individual peasant is split into at least two parts, and the share of labour for
work outside the farm is significant.
In addition, the growth tendency of DMO across provinces is obvious, as
shown in Figure 6. Over the past 10 years, the DMO of 31 provinces is absolutely increasing. This suggests that the proportion of peasants’ wage income
is increasing over these 10 years. Certainly, in shorter intervals, the DMO still
tend to increase (see Figure 6, DOM2001–2003, 2003–2006 and 2006–2010,
respectively).
11
Corresponding to equation 12, υ = wages income and η = household per capita net income from
agricultural production and other correlative sources.
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INCOMPLETE RURAL–URBAN LABOUR MIGRATION
1.0
0.8
0.8
0.6
0.6
0.4
0.4
0.2
0.2
0
0
0
10
20
30
0
10
Province
DMO2001
20
30
Province
DMO2003
DMO2003
1.0
1.0
0.8
0.8
0.6
0.6
0.4
0.4
0.2
0.2
0
DMO2006
0
0
10
20
30
0
10
Province
DMO2006
20
30
Province
DMO2010
DMO2001
DMO2010
Figure 6. The tendency of degree of multiple occupations (DMO) across
provinces
If the numbers of part-peasants are substantial and the DMO is increasing in
recent years across provinces, then the turning point NLm of Figure 4 would be
an important issue to examine. When China is already at or past the turning
point, labour shortages will occur and rural migrant wages will rise.
Section 2 indicates that the undertaking of multiple occupations is peasants’
response to institutional factors and market conditions. On the basis of equations 12 and 13, we compiled from published sources a panel data set on DMO
(θ) and other variables at the provincial level. Price indices of means of agricultural production (AMPI) are chosen to denote the price of means of agricultural
production and a food price index (FPI) is used to denote the prices of agricultural products.
To form an appropriate empirical strategy for estimating the turning point of
peasants’ labour allocation, we take into account the main features of Chinese
peasants. Peasants typically obtain jobs in the non-agricultural sector (in cities)
as construction workers, miners, manufacturing workers and other temporary
workers in wholesale and retail trades or hotels and catering services. Apart
from these vocations, it is hard for them to find other jobs in cities. Hence,
we use the wage rates of these five industries to compose the data set: average
wages of employed workers of mining, manufacturing, construction, wholesale
and retail trades and hotels and catering services, respectively. Although the
published data for average wages of employed workers12 do not indicate the
12
Those data refer to the average wages of employed workers.
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416
Y. CAI AND Y.-K. NG
wages of part-peasants directly, employers usually set temporary wages with
reference to the average wages of employed workers so the use of this data is
appropriate.13
Thus, we consider estimating
% Δθi ,t = ∑ β % Δpi ,t + ∑ γ % Δwi ,t
+ ∑ δ % Δ ( unearned-incomei ,t ) + κ DAT + μi + Δei ,t,
(14)
where β, δ, γ and κ are parameters to be estimated, μi is an unobserved
household component that is fixed over time, and Δei,t is the error term. %Δx
Δx
×100% , the percentage change of each variable. pi denotes the price
means
x
factors, including AMPI and FPI. wi denotes the wage rate that peasants can
obtain in the non-agricultural sector, including mining (MW), manufacturing (MFW), construction (CW), wholesale and retail trades (WRTW), and
hotels and catering services (HCSW). Unearned income includes government
payments (transfer payments), rents and interest from assets.
DAT is a dummy variable of agriculture tax,
⎧1, t ≤ 2005
DAT = ⎨
⎩0, t ≥ 2006
where t represents the year.
Some unearned income may influence the allocation of labour between agricultural production and non-agricultural production, such as transfer payments
(agricultural subsidies, AS) and property income (PI),14 although this income
has nothing to do with farm production. Therefore, as a vector of control
variables we put unearned income in the estimation equation. Unearned income
includes transfer payments and property income, data on which are provided by
the State Statistical Bureau, and can be taken directly from the China Rural
Statistical Yearbook.
The full sample regression results from three different specifications of equation 14 are shown in Table 1. Column (1) shows results from the pooled crosssection regression. Columns (3) and (5) present results from random-effects and
fixed-effects estimation, respectively. Columns (2), (4) and (6) list results from
three types of regression that eliminate the insignificant variables.
13
In fact, using migrant workers’ wages in equation 14 could be more precise than using urban
wages. Unfortunately, China does not report the data of migrant workers’ wages separately.
In official statistics, the terms ‘urban wages’ and ‘migrant workers’ wage’ are often used interchangeably and they show up in equal proportion. Here, we use ‘urban wages’ uniformly to replace
‘migrant workers’ wage’. This strategy can help us to approximate the wages of part-peasants.
14
In China, transfer payments are usually in the form of agricultural subsidies issued by the central
government and depend on the amount of farm production. For a peasant household, property
incomes mainly include rent and interest from assets (usually agricultural production materials).
Hence, this kind of income may relate to an individual’s farm production profits.
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INCOMPLETE RURAL–URBAN LABOUR MIGRATION
Table 1. Degree of multiple occupations response to the price indices, wages,
agriculture tax and other income
Dependent variable: %Δθ
Pooled cross-section
Explanatory
variable
%ΔAMPI
%ΔFPI
%ΔMW
%ΔFW
%ΔCW
%ΔWRTW
%ΔHSCW
%ΔPI
%ΔAS
Agricultural tax
Constant
Province dummy
Hausman test
Observations
R2
Random effects
(1)
(2)
(3)
(4)
0.188**
(0.074)
−0.640***
(0.107)
−0.017
(0.021)
0.164**
(0.066)
0.116***
(0.019)
−0.077
(0.129)
0.023
(0.049)
−0.001***
(0.000)
−0.000
(0.000)
−2.065*
(1.060)
5.166***
(2.793)
No
0.175**
(0.067)
−0.640***
(0.107)
0.194**
(0.075)
−0.645***
(0.107)
−0.017
(0.021)
0.167**
(0.065)
0.114***
(0.019)
−0.075
(0.129)
0.023
(0.049)
−0.001***
(0.000)
−0.000
(0.000)
−2.072*
(1.061)
5.138***
(1.779)
No
0.178***
(0.068)
−0.642***
(0.107)
279
0.189
0.141**
(0.054)
0.113***
(0.015)
−0.001***
(0.000)
−2.104*
(1.013)
4.371***
(0.937)
no
279
0.184
279
0.182
Fixed effects
(5)
0.238**
(0.088)
−0.684***
0.108
−0.021
(0.022)
0.142***
0.193***
(0.054)
(0.070)
0.112***
0.099***
(0.015)
(0.019)
−0.062
(0.122)
0.025
(0.046)
−0.001*** −0.001***
(0.000)
(0.000)
−0.000
(0.000)
−2.107**
−2.124*
(1.014)
(1.075)
4.363***
4.851***
(0.929)
(1.521)
No
Yes
18.44 (P = 0.048)
279
279
0.177
0.185
(6)
0.224***
(0.078)
−0.682***
(0.108)
0.174**
(0.063)
0.097***
(0.015)
−0.001***
(0.000)
−2.165**
(1.036)
4.166***
(0.937)
Yes
279
0.180
Note: *Significant at 10% level. **Significant at 5% level. ***Significant at 1% level. The method of pooled
cross-section estimation is ordinary least squares (OLS). The method of random-effects estimation is
generalized least squares. The method of fixed-effects estimation is OLS. The province dummy variables
are included in fixed-effects estimations but not reported. Standard errors are in parentheses. Standard
errors for the pooled cross-section estimates are calculated using the Huber–White estimator of variance.
Source: See the Appendix.
The choice among these specifications depends on the nature of the unobserved province heterogeneity. Pooled cross-section yields unbiased results
in the absence of province unobservables, random effects if the province
unobservables are uncorrelated with the regressors and fixed effects if the province unobservables are correlated with the regressors. Considering unobservable
province characteristics are likely to affect the estimation of DMO, randomeffects or fixed-effects methods of estimation are most appropriate. Comparison
of the results of the random-effects and fixed-effects specifications leads us to
favour the fixed-effects specification (according to the Hausman test). Regardless, all specifications in Table 1 provide similar results regarding the turning
point of labour allocation.
There are significant coefficients for price components AMPI and FPI,
wage components MFW and CW, control variable PI, the dummy variable of
© 2014 Wiley Publishing Asia Pty Ltd
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Y. CAI AND Y.-K. NG
agricultural tax and the constant. According to Figures 1 and 4, if the quantity
of labour demanded (such as indicated by D1 in Fig. 4) in cities (non-agricultural
sectors) is smaller than NLm at ŵ (for Zhang San, this implies that the real
amount of time he works in the outside labour market is smaller than Lm), cities
receive unlimited labour supply at an unchanged wage rate, and the coefficients
of wage components will be insignificant. Conversely, if the quantity demanded
of labour in cities equals (or is bigger than) NLm (for Zhang San, it implies that
the real amount of time he works in the outside labour market equals (or is
bigger than) Lm), the coefficients of price and wage components will be significant. Hence, we determine that China is already at or past the turning point NLm
in Figure 4. This explains the rising wages and labour shortages in coastal cities
in China in recent years (Yang et al., 2010; Zhang et al., 2011). Peasants adjust
the ratio of agricultural labour according to the relevant wage rates and prices.
For example, a 1% increase in the average wages of manufacturing (MFW)
causes a 0.17% increase in DMO. A 1% increase in FPI causes a 0.68% reduction
in DMO. An inverse relationship between DMO and FPI is expected. When
FPI rises, peasants receive more rewards for their output and they will be
incentivized to add more agricultural inputs. They achieve this addition through
substituting more man-hours from other occupations into agriculture. Therefore, the degree of multiple occupation, DMO, decreases.
The coefficients of PI are significant in three specifications, but the magnitude
is negligible. Unexpectedly, none of the coefficients of AS is significant, and the
magnitude is negligible. This result may be surprising. Agricultural subsidies
mean lower costs or higher net revenue in agricultural production, so why do
they have no influence on DMO? We speculate that agricultural subsidies are
better able to lock peasants into staying on the land, and dissuade peasants
from increasing investment in agricultural production. Agricultural subsidies
are unearned income for peasants, which do not change the real relationship between inputs and outputs in the agricultural production function.
Agricultural subsidies mean higher incomes with an unchanged agricultural
production function. Hence, labour allocation between the agricultural and
non-agricultural sectors is consistent with the previous agricultural production
and is not influenced by agricultural subsidies.
Focusing on the dummy variable of agricultural tax, we note that all the
coefficients on it are negative. This is another unexpected result. As is evident in
Figure 2, the existence of agricultural taxes may increase DMO and the sign should
be positive. However, the observed result is opposite. In fact, agricultural taxes are
similar to agricultural subsidies. They are both of fixed amounts irrespective of
whether you are farming or not. Agricultural taxes mean higher costs or lower
net revenue in agricultural production, and peasants seemingly prefer to allocate
more labour to agricultural jobs while maintaining revenue maximization in agricultural production. Consequently, the existence of agricultural taxes reduced
DMO and the abolition of agricultural taxes eliminated this influence.
To examine the turning point of labour allocation in earlier years, we divide
the sample into two groups based on the key year 2006. Two findings are worth
mentioning. First, the turning point of labour allocation was also reached
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INCOMPLETE RURAL–URBAN LABOUR MIGRATION
Table 2. Degree of multiple occupations response to the price indices, wages,
agriculture tax and other income (two phases: 2002–2005, 2006–2010)
Dependent variable: %Δθ
2002–2005
Explanatory
variable
%ΔAMPI
%ΔFPI
%ΔMW
%ΔAMFW
%ΔCW
%ΔWRTW
%ΔHCSW
%ΔPI
%ΔAS
Constant
Province dummy
Hausman test
Observations
R2
Random effects
(1)
2006–2010
Fixed effects
(2)
Random effects
(3)
0.094
0.098
(0.193)
(0.203)
−1.102***
−1.074***
(0.241)
(0.226)
0.027
0.025
(0.053)
(0.071)
0.033
0.248
(0.154)
(0.220)
0.126***
0.054***
(0.013)
(0.014)
−0.162
0.035
(0.211)
(0.124)
0.102
0.103
(0.081)
(0.075)
−0.000***
−0.000***
(0.000)
(0.000)
−0.000*
−0.000
(0.000)
(0.000)
7.180*
1.418
(3.781)
(3.091)
No
Yes
36.81 (p = 0.000)
124
124
0.265
0.327
Fixed effects
(4)
0.091
0.146**
(0.073)
(0.067)
−0.324**
−0.423***
(0.131)
(0.119)
−0.041
−0.070**
(0.040)
(0.032)
0.237**
0.242**
(0.104)
(0.118)
0.038
0.031
(0.067)
(0.061)
−0.021
0.000
(0.082)
(0.077)
−0.033
−0.049
(0.056)
(0.057)
−0.002
−0.001
(0.005)
(0.005)
0.013
0.012
(0.017)
(0.016)
3.231**
3.959**
(1.563)
(1.917)
no
Yes
114.43 (P = 0.000)
155
155
0.122
0.131
Note: *Significant at 10% level. **Significant at 5% level. ***Significant at 1% level. The method of
random-effects estimation is generalized least squares. The method of fixed-effects estimation is ordinary
least squares. The province dummy variables are included in fixed-effects estimations but not reported.
Standard errors are in parentheses.
Source: See the Appendix.
during 2002–2005,15 because the coefficients of FPI and CW are significant
simultaneously. This implies that we may observe the phenomena of rising
wages and labour shortages in these 4 years. Zhang et al. (2011) find a clear
rising trend in real wage rates from 2003 that supports this viewpoint. Second,
the influence of FPI on DMO is bigger in 2002–2005 than in 2006–2010.
This suggests that the importance of agricultural production for peasants is
decreasing (Table 2).
5. CONCLUSION
The institutional settings in China, including the land allocation system and
the household registration system, have led to a rural–urban labour migration
15
In our opinion, if the coefficients of any urban wages are significant, we consider that the turning
point of labour allocation has been reached. At least, it can indicate that the turning point of labour
allocation appears in this industry.
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Y. CAI AND Y.-K. NG
pattern quite different from those experienced in other countries. Instead of
complete migration, the labour of an individual peasant is often split (typically
over different times of the year) into two or more parts because of institutional
factors. Individuals work both as a peasant in the land and as a temporary
migrant worker in urban areas. This failure of full transfer to urban full-time
work may reduce the amount of rural surplus labour; in addition, it leads to
a lower degree of specialization and an early (or distorted) Lewisian turning
point.16 We examine this issue using province-level panel data, and find that the
turning point of peasants’ labour allocation between agricultural jobs and nonagricultural jobs was reached after 2002–2005. This provides a new perspective
in interpreting the phenomena of China’s labour shortages in coastal cities and
rising rural migrant wages in recent years, and in determining when the Lewisian
turning point is reached.
In addition, the results of the present study have important policy implications
for China’s future development. First, China’s agriculture has not been converted
to large-scale production as a result of the split land ownership system.17 The
process of agricultural specialization is progressing slowly and production efficiency is low. The agricultural sector is struggling to release large amounts of
redundant labour. Second, although China has a lot of cheap labour, the level of
labour productivity is very low and workers can only engage in low-end industries. Due to the incomplete rural–urban migration, it is difficult to achieve
efficiency in investment of human capital. Consequently, China is struggling to
accumulate human capital effectively for part-peasants (large numbers of peasants as migrant workers). The advantage of low wages will not last long if China
does not solve the problems relating to the current institutional factors, these
problems may become a big obstacle to China’s future development.
NOTES
(1) The data are from average wages of employed persons in urban units by sector and region.
(2) In 2001 and 2002, the China Statistical Yearbook reported the data of Average wages of employed
persons of Wholesale and retail trades and Average wages of employed persons of Hotels and
catering services together, so the data of two industries were consistent.
(3) Before 1994, price indices of means of agricultural production was a sub-category in the in the
retail price indices of commodities, and it has been compiled separately since 1994.
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17
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APPENDIX
This appendix documents the data sources and describes the various variables
(indices), calculations and adjustments.
Wages Income: Labour income of peasants earned from non-agricultural
production activities. These data were taken from the China Rural Statistical
Yearbook (2002–2011).
Household Per Capita Net Income from Agricultural Production and Other
Correlative Sources (HPCNI): These data were taken from the China Rural
Statistical Yearbook (2002–2011).
© 2014 Wiley Publishing Asia Pty Ltd
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Y. CAI AND Y.-K. NG
Property Income (PI): These data were taken from the China Rural Statistical
Yearbook (2002–2011).
Transfer Income (AS): Transfer payments (agricultural subsidies or financial
subsidy for agriculture). These data were taken from China Rural Statistical
Yearbook (2002–2011).
Food Price Index (FPI): Food contains grain, oil or fat, meat, poultry and
processed products, eggs, aquatic products, vegetables (fresh vegetable), dried
and fresh melons and fruits (fresh fruits), and dining out. The food price index
was calculated by integrating a variety of food prices. These data were taken
from the China Statistical Yearbook (2002–2011).
Price Indices of Means of Agricultural Production (AMPI): Reflect the trend and
degree of changes in the prices of material inputs (‘means of production’ in the
Marxist terminology) used in agricultural production during a given period.
The official description is ‘Price Indices of Means of Agricultural Production’.
These data were taken from the China Statistical Yearbook (2002–2011).
Average Wages of Employed Persons in Mining (MW): These data were taken
from the China Statistical Yearbook (2002–2011).
Average Wages of Employed Persons in Manufacturing (MFW): These data were
taken from the China Statistical Yearbook (2002–2011).
Average Wages of Employed Persons in Construction (CW): These data were
taken from the China Statistical Yearbook (2002–2011).
Average Wages of Employed Persons in Wholesale and Retail Trades (WRTW):
These data were taken from China Statistical Yearbook (2002–2011).
Average Wages of Employed Persons in Hotels and Catering Services (HCSW):
These data were taken from China Statistical Yearbook (2002–2011).
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