Employment constraints and sub-optimality in Chinese enterprises

In China the employment of rural migrants is tightly controlled by government, with regard both to numbers and to jobs: urban residents receive preference and are protected against competition from migrants. A survey of enterprises employing both urban residents and rural migrants in four cities is analysed, using enterprise-level earnings comparisons, employment functions and production functions. We find both 'job discrimination' and 'wage discrimination' against migrants. The two groups are highly imperfect substitutes or, in a sense, complementary: migrants do the jobs that non-migrants will not or cannot do. The marginal product of migrants exceeds their wage whereas that of non-migrants is below their wage. Although many enterprises have surplus urban workers, they find it beneficial to hire migrant workers as well and are constrained in their employment of migrants.