Social identity and inequality: The impact of China's hukou system

•In this experiment we investigate the causal impact of social identity on individuals’ performance under incentives.•We focus on China’s household registration (hukou) system which discriminates against rural migrant workers in cities.•We find that making hukou identity salient reduces rural migrant students’ performance, relative to local urban students’.•Hukou identity salience also significantly lowers rural migrant students’ relative ranking of earnings under piece rate.•However, the impact of hukou identity salience is insignificant in the tournament regime.•The results shed light on the potential impact of institutionally imposed social identity on inequality.

We conduct an experimental study to investigate the causal impact of social identity on individuals' performance under incentives. We focus on China's household registration (hukou) system, which favors urban residents and discriminates against rural residents in resource allocation. Our results show that making individuals' hukou identity salient significantly reduces the performance of rural migrant students, relative to their local urban counterparts, on an incentivized cognitive task, and consequently significantly lowers their relative ranking in the earnings distribution under the piece rate regime. However, the impact of hukou identity salience is insignificant in the tournament regime, suggesting that its negative effect on migrant students' performance may be mitigated when competition is introduced. The results demonstrate the impact of institutionally imposed social identity on individuals' economic performance, and potentially on inequality.