Self‐employment of rural‐to‐urban migrants in China

The purpose of this paper is to explore the determinants of self‐employment among rural to urban migrants in China.

The analysis is based on a sample of migrant household heads from the 2008 Rural‐Urban Migration in China and Indonesia (RUMiCI) survey. An estimate of the wage differential between self‐employed and employed workers is obtained by means of an endogenous switching model and used to estimate the employment choice. The procedure is extended to account for migration selectivity bias, for alternative statuses before migration, and for different post‐migration employment histories.

Self‐employed migrants are positively selected with respect to their unobserved characteristics; their wages are substantially higher than what they would have obtained had they chosen paid work. Furthermore, even after accounting for the substantial heterogeneity across cities, industries, occupations, and after correcting for the migration selectivity bias, the wage differential is found to be an important determinant of self‐employment.

The finding that market imperfections do not constrain the self‐employment choice of migrants does not imply that reforms designed to eliminate institutional barriers are undesirable. Policy should target the reduction of gaps between urban residents and migrants (such as the household registration system – hukou), so that migrants can access new business opportunities which are currently a prerogative of urban residents.

The paper analyses the determinants of self‐employment using a recent survey based on a sample of rural‐to‐urban migrants in China. The key findings indicate that migrants who choose self‐employment are positively selected in terms of their unobservable characteristics. Moreover, the wage differential has a strong positive effect on the probability of choosing self‐employment. In the transition to a market economy, which is taking place in China, the identification of the determinants of self‐employment is crucial.