Labour Migration And Urban-Rural Labor Income Disparity In China

Since the 1990s, there has been a large scale of labor migration in China, especially migration from the rural area to the cities, and the middle and west area of China to the eastern coastal cities. Since the theories of microeconomics tell that the increase of labor in the labor market could move the labor supply curve to the right which decreases the labor price in the market, we can know that when the cheap rural labors enter the urban labor market, the price of the urban labors will decrease whereas the price of the rural labors will increase. Hence, since the labor migration, the income gap of the rural and urban families will get smaller and smaller. But the fact is that since the year 1985, the income gap has been keeping going up in China. Does China's fact prove that the theories are wrong? Then why did not the income gap between the rural and urban families shrink since the large-scale labor migration?Well, while we were talking about the theories of the labor market, most of us have forgotten the potential precondition of the mechanism—rural labors entering the labor market must the same as the urban ones. This is a very crucial condition especially in China while the farmers who stay on the farm and can not find a job in the city obviously have low human capital while rich people in the city always own high human capital. So is the paradox of labor migration and shrinking of income gap between the urban and rural area in China due to the deep gap in human capital? So this paper is to deal with the question—does the labor migration paradox happen in China because of the great difference of human capital in China.To deal with this question, we choose to only consider the middle income group of the people for the following reasons:the low income group almost consists of the labors from the rural area who only do farm work and own absolutely low human capital, and because of their low endowment, they can not compete with labors in the city thus the labor market mechanism will not work; the high income group almost consisting of the city people always have high human capital which the entering labors from the rural area can not compete with thus the labor market mechanism also fails to shrink the income gap between them.Another question while dealing with the question is that labor migration can only adjust the labor income of the family. But the household income can come from other sources like capital income, all kinds of transfer payment, and also the labor number of the family will have an impact on the per capita labor income.