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Huibin Chang (Dongbei University of Finance and Economics (DUFE)) - The welfare effect and the wider impact of regulating low-skilled migration

Date and Time: September 18th, 2019, 3:00 - 5:00 pm

Room: A 101 in the Economics Building (Museum)


We examine the general equilibrium and welfare effects of various public policies that either restrict or facilitate migration on migrant workers and local residents. We do so by building a carefully estimated and calibrated computable general equilibrium model and then carrying out policy simulations using Shanghai as an example. Specifically, we use our model to answer whether restricting low-skilled worker in-flow would benefit or hurt local residents of different skill types.

In our model, the agents in the economy include consumers of different origins (Shanghai or other provinces in China) and of different skill types, firms from different industries that employ different combinations of factors to produce goods that are sold locally or traded outside the metropolitan area, a government that sets public policies that either limit migration or facilitate labor in-flow, provides public goods and levies taxes. The model treats consumer behavior as a two-stage optimization process. In the first stage, consumers of different origin locations choose discreetly whether or not they will migrate to a city (Shanghai in our estimations and simulations), then they will choose the utility-maximizing consumption bundle which comprises goods produced by competitive profit-maximizing firms and housing in the second stage.

The model calculates equilibrium wages for different types of workers in different industries, equilibrium prices of final goods, equilibrium rents and equilibrium migration and local population. Moreover, consumer welfare is explicitly measured by compensating variations for various types of consumers. This is because making migrating into the city harder for the low-skilled workers would reduce the labor supply, which, in turn, would keep production costs at higher levels especially for firms that rely on the low-skilled labor force. These high labor costs would then generate a ripple effect that spread through all firms through the input-output linkages. In a competitive market, higher labor cost is then translated into higher prices for final goods, which would hurt the local populations, more so for the richer high-skilled population than the lower-skilled. For instance, we find that a 50% increase in migrating cost for the non-local low-skilled workers would decrease welfare across the board for all types of consumers (local or non-local, high-, mid-, and low-skilled). Also, the overall per person welfare of local high-skilled worker reduces by 851 CNY per year as measured by compensating variation, followed by a 305 CNY reduction of welfare for the non-local low-skilled workers. Other types of consumers are hurt by such a stringent Household registration system, although not as much as local high-skilled residents.

About the Speaker

Huibin Chang is Assistant professor of Dongbei University of Finance and Economics and a member of the Institute for Advanced Research at DUFE. His research focuses on Applications of the Regional Economy, Land Use and Transportation CGE Model to Urban Transportation, Pricing and Investment Policies.