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Prof. Ming Li
Assistant Professor of Economics
School of Management and Economics
Chinese University of Hong Kong (Shenzhen)

This paper investigates the influence of increased labor market integration on the migration decisions of entrepreneurs and the performance of firms in China over the past three decades. We use a spatial general equilibrium framework that takes into account the key features of the Chinese migration restriction system to explain how workers’ and firms’ location choices interact in response to heterogeneous changes in labor mobility restrictions. We compile a unique dataset of prefectural-level Hukou reforms between 1995 and 2019. We use this exogenous change in labor mobility costs, together with data on labor migration flows, entrepreneurs’ migration flows, and 90 million firms’ registration records, to identify the effect of labor mobility restriction reduction on the regional redistribution of economic activities. The removal of Hukou restrictions facilitates the sorting of entrepreneurs, with those in high-skill intensity industries moving from smaller cities to larger cities. Additionally, we demonstrate that skill-biased relaxation of mobility restriction attracts high-skill labor and migrant entrepreneurs, at the expense of local entrepreneurs. In contrast, nonrestrictive Hukou relaxation stimulates overall economic activities through abundant labor supply, firm agglomeration, and, more importantly, the simultaneous movement of labor and entrepreneurs.