National Wage Trends and Migration in a Chinese Village Economy: A Micro Level Modeling Approach Based on a Composite Utility Function

Ulrich Kleinwechter and Harald Grethe

American Journal of Agricultural Economics, 2015, vol. 97, issue 3, 701-726

Abstract: China's economy is experiencing a regime shift away from a fully elastic supply of labor from a large pool of rural surplus labor and toward a situation of increasing labor scarcity and rising wage rates. Moreover, faster wage increases in the regions of origin of many rural-urban migrants are likely to affect the dynamics of inter-regional migration. These wage trends have implications at the local level, in particular in a setting in which migration connects rural communities to the national labor market and in which migration is of high importance for the livelihoods of rural households. Taking a village perspective, this article develops a village computable general equilibrium model to study local impacts of current wage trends in China. As a central piece of the model, the role of access to migration for household livelihoods is recognized. Access to migration is linked to household demographics and included in the model through a composite utility function that captures household preferences and disutilities associated with alternative off-farm activities. Simulation results illustrate how households' utility considerations affect migration responses to national wage changes. Statements about possible impacts on village level labor supply, land use, and agricultural production are made. When migration wages and local off-farm wages are simulated to increase, an overall increase in household and village migration and a higher supply of labor to local off-farm labor markets is accompanied by a contraction of farm production. Although land is reallocated between households with different migration responses, total agricultural output declines.

Date: 2015
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