The impact of low-skilled migrants on firm productivity: Evidence from hukou reform in China

Abstract

In the past, China divided its citizens into “agricultural hukou” and “non-agricultural hukou” to limit rural–urban migration, which contributed to China's early industrialization. However, the binary household registration system no longer suits China's development, and cities in China have successively carried out hukou reforms. Based on the reforms that trigger rural–urban migration, we investigate the impact of low-cost and low-skilled migrant workers on firm-level total factor productivity (TFP). We employ a staggered difference-in-differences (DID) strategy to show the following results: (1) The hukou reform substantially reduces the listed firms' TFP by 6.9%. (2) The hukou reform has increased the number of employees and the labor intensity, as well as reduced average employee salaries, employee responsibility, and R&D in enterprises, revealing the mechanism by which hukou reform affects firm productivity. (3) Our findings are particularly pronounced in non-state-owned enterprises (non-SOEs), enterprises with more stringent financing constraints, and cities with wider rural–urban income gaps.