THE RISE OF RURAL-TO-RURAL LABOR MARKETS IN CHINA



Enterprises in villages that have a history of hiring workers from other areas
continue to increase the extent to which they rely on incoming labor. The coefficient on
the lagged dependent variable is positive and significant in the 1995 regressions (row 2,
columns 3, 4, 7, 8, 11, and 12).ix One interpretation of these results is that villages that
have overcome the costs and taboos involved with bringing labor into the village find that
hiring incoming labor remains attractive. We will return to this issue and the
interpretation of the findings of the labor demand analysis in the conclusion.

The Determinants of Rural Wages

Examining the wage structure facing rural workers provides further evidence of
the rapid but still incomplete development of China’s rural labor market. Wage data
comes from our survey, in which we asked respondents in each village about the wage
rate for each labor category (7 categories—e.g., local wage, out-migrant, etc.), for each
year (1988 and 1995), and for men and women. Our analysis is carried out by regressing
a series of wage observations from each village on the type of job category, human
capital characteristics of average workers in the job category , the employment sector,
provincial dummies, and whether or not a village has incoming workers. The purpose of
our analysis is to test whether wages of workers in villages with incoming workers are
higher or lower than in villages that hire only local labor.

The results from wage equations in our survey also perform fairly well and, as in
the labor demand analysis, tells a story of gradually improving, albeit still imperfect,
labor markets. For example, the human capital variables—education and age—have
coefficients that generally display a strengthening of the importance of human capital in
wage determination. The wage differential among employment sectors within regions are

24



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