The 2020 Chinese census highlighted a 69.7 per cent upswing in domestic migrant numbers, compared to 2010 data. Notwithstanding the challenges associated with substantial population influxes, some propose that the Chinese government should refrain from curtailing large-scale labour migration. The hypothesis underlying this perspective is that unfettered labour mobility would catalyse the convergence of regional economies, thereby reducing the need for internal labour migration. But this analysis lacks holistic insight.
The evolving landscape of China’s migrant worker demographics reflects noteworthy shifts in employment sectors and educational attainment. Specifically, 41.9 per cent of the newer generation of migrant workers (born after 1980) are engaged in the manufacturing sector, a notable increase from the preceding generation’s 25.5 per cent. Conversely, the construction sector, which attracted 28.9 per cent of older generation migrants (born before 1980), accommodates merely 10.6 per cent of this new migrant cohort.
This new cohort of migrants are also better educated. Those born in the 1980s and 1990s have received 1.13 and 0.84 more years of education respectively, when compared to the generation born in the 1940s. This paradigm shift not only signifies enhanced educational standards but also intimates an insidious sidelining of under-skilled labourers from urban economic vibrancy. While skilled migrants find alignment with the dynamism of urban environments, their lesser-skilled counterparts often grapple with barriers to urban welfare and amenities. In severe scenarios, these low-skilled migrants face eviction from metropolitan centres.
Over time, such bifurcation in labour demographics could exacerbate regional economic disparities. For example, Romania witnessed an annual increase of approximately 0.6 per cent in regional economic divergences from 1995 to 2015 due to migration’s composition effects. Technological proliferation in metropolitan areas amplified demand for skilled labour, reducing opportunities for under-skilled workers.
If skilled labour migrates from underdeveloped regions, the subsequent depletion in human capital in those areas might negate the advantages of a bolstered capital-to-labour ratio and stymie growth. The dearth of skilled labour in these regions might further deter the growth of high-tech industries, given that regional labour composition influences the technological decisions of firms. Over 66 per cent of changes in skill availability due to migration are counterbalanced by inter-firm factor intensity modifications. Maintaining consistent relative wages, this insinuates that adaptive production methodologies are pivotal in counteracting labour influx perturbations, potentially widening the economic chasm between cities.
On the one hand, regions requiring greater labour mobility like ASEAN, as well as countries actively reforming their labour markets amid rapidly aging populations, serve as examples where enhancing labour mobility is crucial for boosting productivity and fostering inclusive growth. On the other hand, the above analysis underscores the need to fortify the skilled labour reservoir in underdeveloped regions.
It is essential to integrate educational policies when taking measures to improve labour mobility. Such approaches should aim to bridge the wage gap between high and low-skilled workers and foster regional economic convergence, without suggesting a restriction on labour mobility.
One plausible strategy could be to increase educational investment by local authorities. But existing research has shown local governments to be more inclined towards funding infrastructure projects at the expense of education. For example, after a reform that increased fiscal autonomy in the 1990s, the average education expenditure share in counties within Henan province declined from 0.27 to 0.24, indicating a diminished emphasis on education spending in these areas.
The driver behind this inclination stems from an ambition to increase local GDP and tax revenue by channelling resources into tangible productive investments. The transient nature of population dynamics in underdeveloped regions further complicates the landscape. As these regions grapple with significant population exoduses, any local governmental endeavours to escalate educational investments are often perceived as yielding limited immediate economic returns. More importantly, compounded by the economic headwinds stemming from China–US trade and technology frictions as well as the COVID-19 pandemic, the propensity for increased educational spending remains bleak.
Since the Chinese central government oversees economic and social activities and controls education, a more sustainable alternative could be one driven by the central government.
The central government might firstly lower the mobility costs for low-skilled labour, fostering a more balanced ratio of migration between high and low-skilled workers. Second, an analytical review reveals that fiscal transfers predominantly consist of non-conditional types over those emphasising education. As an alternative to fully liberalising household registration, the central government might consider implementing additional educational transfer funds for urban migrants. Even if these workers don’t attain new household registration, their children can access quality education in these urban hubs and later return to their registered hometowns. This would mitigate the educational investment pressures on their hometown regions.
It is important that the central government recalibrates the balance between labour migration and skills depletion by allocating more towards educational transfers. Such strategic recalibrations could potentially push China’s economy towards intensified agglomeration and catalyse economic proliferation.
Yongjie Xiong is a researcher at the Central University of Finance and Economics, China.