Migration, Housing Constraints, and Inequality: A Quantitative Analysis of China

72 Pages Posted: 28 Apr 2020 Last revised: 25 Sep 2020

See all articles by Min Fang

Min Fang

University of Rochester, School of Arts and Sciences, Department of Economics

Zibin Huang

Department of Economics, University of Rochester

Date Written: April 27, 2020

Abstract

We investigate the role of migration and housing constraints in determining income inequality within and across Chinese cities. Combining microdata and a spatial equilibrium model, we quantify the impact of the massive spatial reallocation of workers and the rapid growth of housing costs on the national income distribution. We first show several stylized facts detailing the strong positive correlation between migration inflows, housing costs, and imputed income inequality among Chinese cities. We then build a spatial equilibrium model featuring workers with heterogeneous skills, housing constraints, and heterogeneous returns from housing ownership to explain these facts. Our quantitative results indicate that the reductions in migration costs and the disproportionate growth in productivity across cities and skills result in the observed massive migration flows. Combining with the tight land supply policy in big cities, the expansion of the housing demand causes the rapid growth of housing costs and enlarges the inequality between local housing owners and migrants. The counterfactual analysis shows that if we redistribute land supply increment by migrant flow and increase land supply toward cities with more migrants, we could lower the within-city income inequality by 14% and the national income inequality by 18%. Meanwhile, we can simultaneously encourage more migration into higher productivity cities.

Keywords: Migration, Cities, Housing Constraint, Gravity, Inequality

JEL Classification: E24, J61, R23, R31

Suggested Citation

Fang, Min and Huang, Zibin, Migration, Housing Constraints, and Inequality: A Quantitative Analysis of China (April 27, 2020). Available at SSRN: https://ssrn.com/abstract=3572838 or http://dx.doi.org/10.2139/ssrn.3572838

Min Fang (Contact Author)

University of Rochester, School of Arts and Sciences, Department of Economics ( email )

United States
2012089778 (Phone)

Zibin Huang

Department of Economics, University of Rochester ( email )

United States

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