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The Hukou System’s Impact on Employment Welfare

Xiamen © Charlottees / Public Domain / Pixabay

The Chinese Hukou ( 户口 ) system, specifically the modern iteration implemented under the People's Republic of China Hukou Registration Regulation in 1958, is a system in which the people of China were segregated into nóng mín ( 农民 ), those who lived in the agricultural sector, and the shì mín ( 市民 ), those who resided in the non-agricultural sector. The Hukou system also grouped citizens into localities upon which various forms of state benefits such as investment into education, pension, and housing were dependent (Young, 2010).

Initially, a major objective of the Hukou system under Mao was to move China away from a primarily agrarian economy to eventually become an industrialised global superpower. Thus, priority was placed on urban sector employment, with the Hukou system specifically designed to comparatively diminish incentives to stay in the agricultural sector and instead create a myriad of additional welfare policies. Yet these were specific to the urban sector to encourage the populace to migrate toward industrial regions in the 1950s (ibid).

Within the aforementioned stratifications, it is imperative to analyse potential wage penalties incurred on individual rural Hukou migrants in employment in urban areas and the disparities that exist within the workplace in and of itself, drawing on literature from Dulleck, Fooken, and He (2020). Additional considerations will also be given to the relative value of employment for urban and rural Hukou holders respectively. It is also worth considering plans in place to increase the national minimum wage and how this could impact the labour market in achieving greater equity for migrant workers, yet this seems a superficial solution when the main cause of wage penalties is discrimination against migrant rural Hukou holders. In both respects, the Hukou system seems to have a negative impact on the welfare of migrants, due a seemingly systemic enforcement of wage penalties on migrant workers and a stark disparity in the relative value of employment for rural Hukou holders.

Possessing a rural Hukou status and working in an urban area leads to a disproportionate degree of discrimination against migrants in the workplace. Dulleck, Fooken, and He find that the Hukou system impacts employment in 2 ways. Firstly, local employers do discriminate against migrant workers, though there is no conclusive evidence indicating that local workers with urban Hukou status discriminate against migrant employers with rural Hukou status (p. 643). Additionally, discrimination against migrants appears most strongly in employer decisions over final wages. This means that the wage of the migrant workers is only determined after the final product, when worker wages cannot be influenced by expectations and uncertainty as to the value of the individual’s quality of labour. This then leads to the second core finding, which is that discrimination against migrant workers is primarily preference-based, rather than based upon statistical concerns regarding the quality of the labour input by migrant workers. This is evidenced by a 2010 study which revealed that rural workers generally earned 40% less on average in comparison to their urban counterparts, with only 16% receiving employment benefits (Maurer-Fazio, et al., 2015). This is in direct opposition with the Labour Contract Law passed by the central government in 2008, which was supposed to ensure equal access to jobs, establish a minimum wage, and necessitate that employers provide contracts that included employment benefits to full-time employees.

Yet migrant worker rights are frequently violated and studies show that they face not only physical but also psychological harassment (Cheng, et al., 2015) due to the perpetuation of the belief of rural migrants’ inferiority in the workplace by employers. This is probably due to the findings regarding low education attainment exposed by academics such as Zhiqiang Liu (2005), generating these negative stereotypes of inferior rural migrants by employers regardless of individual attainment or potential. This then culminates in wage arrears disproportionately affecting migrant workers, whereby employers either fail to pay the full wage to workers, or simply don’t pay at all. Although these practices are still blatantly illegal, a study found that at the end of the 1990s, approximately 46% of migrant workers hadn’t been paid in the past three months, with some not having even been paid in a decade (Cheng, et al., 2015). It seems then that these negative stereotypes of rural Hukou holder migrants manifests in poor individual welfare in employment due to wage arrears and a deprivation of employment benefits.

However, it ought to be noted that there have been attempts for reform that have improved this situation. The imposition of the 2008 Labour Contract Law in tandem with China’s 12th ‘Five Year Plan’, have both tried to ensure that migrants not only get access to employment benefits afforded to their local, urban counterparts, but that they’re also entitled to the same regional minimum wage. It was hoped that the imposition of these policies might reduce the missed opportunity and financial cost of leaving home for rural Hukou holders in the wake of rising inflation to incentivise them to fill a previously diminishing labour supply of factory workers (Selby, 2012). Indeed, this seems to have been somewhat successful in amending the issues concerning wage arrears which proved devastating to migrant welfare, as a 2006 to 2009 study found that only 8% of migrant workers had experienced wage arrears in comparison to the previous 46%. Additionally, the National New-type Urbanization Plan (2014-2020) seeks to address the poor migrant welfare caused by rapid urbanisation, aiming to reduce the 17.3% gap between urban residents with rural Hukou and those with urban Hukou in 2012 by 2% prior to 2020 (Wang, et al., 2015). If one were to use the Gini coefficient as a proxy for the potential success of this, inequality in China has reduced notably, with a peak value of 0.49 in 2008 to 0.46 in 2019 (Statista, 2020).

Yet these reforms still seem a superficial remedy to the core problem, which is the discrimination and bias that migrant workers face due to not possessing urban Hukou, subsequently negatively impacting their individual welfare. These solutions instead deal with trying to wean rural Hukou holders onto urban Hukous, only after they get admitted through a lengthy process, rather than improve the immediate condition of rural Hukou holders who migrate into urban cities for work. Fundamentally, it is the existence of the Hukou system itself that creates these prejudices against migrant workers, inextricably linking the Hukou system to a negative impact on the individual welfare of migrants due to the urban/rural dichotomy. This social disparity is then only exacerbated by a disproportionate relative value of employment between migrant and local workers.

The emphasis on urban benefits to comparatively diminish rural incentives reduced the relative value of employment in the rural sector and reduced the value of professional skills acquired by rural Hukou holders, as agricultural and farming skills aren’t categorised as professional skills (Suda, 2016). This forced rural Hukou holders who sought to migrate to urban areas in search of more lucrative employment to pick up more menial jobs and developed the stereotype of migrant workers as unskilled and inferior, yet this was prior to the aforementioned Labour Contract Law and the National New-type Urbanization Plan. This meant that the relative value of employment within these fields of work that were dominated by migrants was severely diminished, as migrant labour could be exploited without legal repercussion, whilst those who held urban Hukou were entitled to employment benefits and protected by law. The long run consequences of this are that, due to menial work being cheaper because it was occupied by migrants, the relative value of employment for rural Hukou holders was far less than the work occupied by urban Hukou holders, contributing to migrant workers having an average income 17% less than that of local residents (Zhanga & Wu, 2017).

In summation, the prejudices that arise and the discrepancy in the value of employment due to the Hukou system is overwhelmingly negative, and though there have been sincere attempts to reform this such as the Labour Contract Law implemented in 2008, they fundamentally act as blunt solutions to a systemic problem that exists due to the system under which these problems are manifest. It seems then that due to continued discrimination and poor relative value of employment, the Hukou system negatively impacts the individual welfare of migrants.

Calvin is a recent graduate in philosphy, politics, and economics at the University of Sussex as well as a member of the Royal Economic Society in the United Kingdom. Aside from his time at university and further studies, he enjoys video games and works with an e-commerce company. You can find him on LinkedIn and Instagram.

The opinions expressed here are those of the writers and do not represent the views of European Guanxi.

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