The Rational Peasant In China

A central component of economic development is the reallocation of household labor, typically from subsistence agriculture to nonfarm employment. This occurred in the advanced market economies during the Industrial Revolution, contributing to increases in agrarian and industrial productivity and raising standards of living dramatically. A similar process began in China in the first decade of economic reform and has been central to the development of China's rural and urban economies. Despite its broad social implications, the process by which rural households allocate labor is not well understood. In this paper, we examine the strategies rural households used in the early stages of China's economic reform as they adapted to fundamental changes in the institutional structures of the nation's agrarian economy. Using a large, national sample, we explore the degree to which households diversified labor efforts across types of non-farm work. We find that peasant households allocated labor to non-farm work only after subsistence needs were met. We also observe that peasants generally responded to local and regional opportunities but that political capital, human capital, and cohort effects accounted for differences in household responses.