Rural-Urban Migration, Substitutability of Human Capital and City Productivity : Evidence from China

Among the studies on the productivity effect of migration, the role of the substitutability of human capital between migrant workers and local workers has not received much discussion. The elasticity of substitution is important for rural-urban migration in China, because there is substantial difference in schooling quality between rural and urban regions and because there is imperfect competition in city labor markets. Using aggregate city-level data from the 2010 China Population Census, we find that the positive effect of human capital on city productivity improves as the substitutability increases. Moreover, grid-search shows that the “best” estimate of the substitutability in China is between 2.1 and 2.5, far from being complete