The Local Labor Market Effect of Relaxing Internal Migration Restrictions : Evidence from China

How does a relaxation of migration restrictions affect labor-market outcomes of incumbent migrants? In this paper, we answer this question by studying a significant internal migration policy change in China: the 2014 hukou reform. This reform substantially removed the migration barriers of cities with a population below 5 million (non-megacities) but kept the migration barriers in megacities almost unchanged. Exploiting this policy discontinuity and using a repeated cross-sectional dataset from 228 cities between 2011 and 2017, we estimate the wage effects on migrants. We find that migrants' income in non-megacities experiences an approximately 3.8% decline relative to that in megacities after the policy shock. The effects are stronger among migrants who have stayed longer in their current cities. In contrast, the policy change has no impact on the wages of the natives. Furthermore, we find evidence that migrants and natives compete in different labor markets. These results suggest that the downward wage pressure imposed by an inflow of migrants falls primarily on incumbent migrants, which, therefore, alleviates the policy concerns about the potentially negative effects of removing migration restrictions on natives