Has China run out of surplus labour?

Many recent studies claim that China has reached a Lewisian 'turning point' in economic development, signalled by rising wages in urban areas and the exhaustion of rural surplus labour. In this paper we show that despite some evidence of rising nominal urban unskilled wages between 2000 and 2009, there is little in the data to suggest that this wage increase has been caused by unskilled labour shortages. China still has abundant under-employed workers with very low income in the rural sector. We argue that China's unique institutional and policy-induced barriers to migration have both prevented many rural workers from migrating to cities and also reduced the migrants' length of stay. We project that under alternative institutional settings, the migrant stock could easily be doubled from the current 150 million to 300 million by increasing either the average length of migrant stay, or the migrant inflow, or both.

► We examine the causes of rising urban unskilled wages in China between 2000 and 2009. ► We argue that wage increases were not caused by genuine unskilled labour shortages. ► We demonstrate an abundance of under-employed workers in the rural sector. ► We argue that China's policy-induced barriers to migration restrict migrant volume and duration. ► We show that further institutional reforms could double the migrant stock by 2020.