Surplus Labour and Urbanization in China

This paper distinguish two types of urbanization and argues that urbanization without sufficient employment creation in the urban sector might have no economic benefit as it only involves surplus labour in the rural areas becoming urban surplus labour. It argues that China’s Hukou system that has restricted rural-urban migration did not necessarily reduce economic efficiency rather it might have raised urban welfare at the expense of rural welfare. An under-discussed feature of the Hukou system is that it ties people not to just either rural or urban areas but to particular geographical locations. This paper argues that many of the recent “rural land for urban Hukou” programs, in the name of reducing the rural-urban income gap, do little to address the geographic specificity of the Hukou restrictions but may in effect amount to a land appropriation by local governments. This paper suggests that to improve economic efficiency and welfare, a “real” reform of the Hukou system should reduce barriers for cross regional migration. Copyright Eurasia Business and Economics Society 2013