Rural-urban migrants’ remittances and wage inequality: Evidence from China

Abstract

There is a link between rural-urban remittances and wage inequality. However, the existing literature sheds little light on this topic. In this study, we establish a three-sector general equilibrium model to investigate the effects of rural-urban migrants’ remittances on wage inequality. Further, we use Chinese macroeconomic data to calibrate the parameters and conduct analysis with numerical simulation. We find that, when rural-urban migrants raise their remittance rate, wage inequality between skilled labour and the urban formal sector remains unchanged in the sector-specific capital case but narrows in the sector-mobile capital case. Moreover, in the sector-specific case, skilled and unskilled wage inequalities, w_SY and w_SZ, decrease at the same rate as the urban-rural wage inequalities, w_XY and w_XZ, respectively. In the mobile case, however, the former declines faster than the latter.