Internal migration and external benefit: The impact of labor migration on the wage structure in urban China

•A new study of the unique experience of massive internal (within-country) migration but with high segregation of jobs between migrants and natives•The elasticity of substitution in jobs between migrants and natives is very low due to the hukou restriction.•Job segregation is an important factor that explains particular labor market findings in China.

China provides a unique experience of massive internal (within-country) migration but with high segregation of jobs between migrants and natives. Thus, migration has a complementary external effect on native wages: the elasticities of complementarity of migrants are about 31.7%, 20.3%, and 19.9% for native workers with a college, high school and less than high school education, respectively. After the wage is deflated by the housing price, the elasticities decline to 11%, 8.2% and −4.4% for the respective education groups, which provides the lower-bound analysis results. In addition, migration has widened wage dispersion, as well as increasing the education premium and residual inequality. The elasticity of substitution in jobs between migrants and natives is very low due to the hukou restriction, and increasing proportions of migrants in any given labor force widen the migrant/native wage gap. Job segregation is an important factor that explains particular labor market findings in China.