From the analysis in chapter 9, it is clear that although rural–urban migration brings great benefits in terms of economic growth in both rural and urban China, there are problems preventing the efficient allocation of labour among different sectors and regions. An important constraint on the efficient allocation of rural migrants is insufficient information, reflected in the existence of a significant regional wage differential among regional migrant labour markets. Although there are no institutional barriers preventing migrants from entering different destinations, migrants earn considerably different wages in different urban cities.

To enter a fully functioning labour market in China, job searches should be able to respond freely to demand and supply. However, the significant regional wage differentials indicate that migrants are not moving to higher-wage areas. Why is this, given that institutional barriers to the destination of migration have been dismantled? This chapter examines this question using data from two surveys on rural migrants in Jinan City (Shandong province) and Dongguan City (Guangdong province).

Background and data

Table 10.1 presents migrants' monthly earnings in six cities. It shows that the monthly wage gaps among the six regions are large, ranging from 4 to 50 per cent of the wage level in the highest wage region, Shenzhen.

Regional wage gaps could occur in the following situations:

• if there are restrictions on the destinations to which rural residents can migrate

• if the costs of migration to the various destinations are considerably different

• if living costs are considerably different