Internal migration and labor share: Theory and evidence

Yang Yang, Qi Yu, Junsen Zhang and Kang Zhou

Journal of Comparative Economics, 2026, vol. 54, issue 2, 429-444

Abstract: This paper examines the effect of internal migration on firms’ labor share. We develop a theoretical framework in which rural-to-urban migration increases the labor share of local firms by substituting labor for capital and increasing the skill wage premium. Using a “shift-share” instrumental variable approach, we show that migration inflows increase the labor share of local firms in China. To test the mechanisms predicted by the model, we show that migration inflows reduce capital per worker, raising the relative wages of skilled labor while lowering the skill composition of firm employment. Finally, heterogeneity analysis reveals that the effect is more pronounced among private firms and highly educated migrants, with no significant gender differences.

Keywords: Internal migration; Labor share; Factor input (search for similar items in EconPapers)
JEL-codes: D33 J21 L23 P25 R23 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jcecon:v:54:y:2026:i:2:p:429-444

DOI: 10.1016/j.jce.2026.01.005

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