What should economists know about the current Chinese hukou system?

- This paper explains the current hukou system in China.
- This study analyzes the role of the current hukou system on China's labor market.
- People with different hukou have different benefits in cities.
- There exists labor market discrimination against rural hukou holders in cities.
- The hukou system has a negative impact on internal migration and efficiency.

This article explains the current hukou system in China and provides the most recent evidence on the impact of the hukou system on the Chinese labor market and economy. By a comprehensive literature survey, this paper shows that the hukou system plays in two major roles in current China. First, workers with different hukou face different costs of living in cities and have different access to government-provided public services and welfare programs in the urban areas. Migrants with rural and non-local hukou working in the Chinese big cities have no or little access to welfare programs provided by local city governments. Second, there exists labor market discrimination against rural hukou holders in cities, especially in the urban high-wage sector such as state-owned enterprises. The current hukou system has a negative impact on rural-to-urban migration in China as well as on economic efficiency and equality by reducing the expected benefits associated with migration.