Escaping Low-Level Equilibrium of Urbanization- Institutional Promotion, Social Interaction and Labor Migration

Chen Zhao 1,  Jiang Shiqing 2, Lu Ming 3 and Hiroshi Sato4
1 Center for China Economic Studies, Fudan University, Shanghai, China
2 Fudan University and Industrial Securities Co., Ltd, Shanghai, China
3 Shanghai Jiaotong University; and Fudan University, Shanghai, China
4 Department of Economics, Hitotsubashi University, Tokyo, Japan

Abstract:  The policies resulting in urban-rural segmentation have not only directly impeded the transfer of labor from rural to urban areas, but also trapped the process of urbanization in a low-level equilibrium, as the negative effects are amplified by interdependencies between interpersonal decisions. This paper finds from the CHIPS2002 data that there is interdependence of rural residents’ decision-making on labor migration from rural to urban areas, and the interdependence is strengthened by the exchange of information between rural residents. According to the simulation results of the models in this paper, China’s rural-urban labor migration is indeed at a low-level equilibrium. To get rid of the low-level equilibrium, in addition to improving the level of education and promotion of information exchange among rural residents, it is more important to implement “big push” policies to eliminate institutional barriers to labor mobility and accelerate urbanization with the social interaction.
Keywords: urbanization, labor mobility, social interaction, peer effect

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