Welfare and Productivity of Migrants: Lessons from China’s Megacities

We study productivity and welfare provision in three megacities, Beijing, Shanghai and Guangzhou in China. We developed an economic model, which regards individuals as both consumers of private and public goods and suppliers of labor in the production process, operating within the Hukou system which constrains entitlement to public goods and services for internal migrants. We, thus, explored the impact of restricting migrants’ access to public goods and services on their overall utility and utility derived from using key public services, analyzed how such restrictions distort effects of income on utility, and established a trade-off between megacity residency and productivity of the sectors employing them. Given the similarities between limits to public provision impose through Hukou in China and various entitlement restrictions endured by international migrants in other countries, our study has the potential to inform wider international debates. We collected survey responses from 1,500 individuals from these three megacities and validated the key implications of the model. Being a migrant adversely affected overall life satisfaction (utility) and satisfaction with public services. Migrants were likely to accept lower pay in exchange for megacity residency, thus they experienced a welfare loss due to skill mismatch despite potential welfare gains from better access to public services through residency in a megacity. Migrants’ residency value is also positively related to the technology of the sector employing them, a finding perhaps explaining why high-tech sectors could sponsor Hukou transfer.