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EC_part4 - 4.1.2 Location of housing income.Most important...

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4.1.2 Location of housing Differences in endowments of household characteristics contribute roughly half the gap in PPP ln  income.  Most important here is education as explained in the above (4.1.1). Location of residence  contributes the other half of the PPP income gap. Here location’s contribution is defined as the  sum contribution to the gap of differences between urban and rural areas in the constant terms,  coefficients on provincial dummy variables, and coefficients on household and individual  characteristics. Spatial price deflation makes a difference here, reducing location’s contribution by  more than 10 percentage points. Over time the contribution of location declines somewhat, which is  consistent with increased mobility and market integration. Why, after controlling for observed characteristics, does location of residence remain so important  in explaining income differences? The hukou or household registration system and related policies  that continue to hinder rural-to-urban movement are obvious culprits. Yet the persistence of  urban-rural   gaps   in   other   countries   suggests   that   even   without   such   artificial   restrictions,  migration  is  unlikely  to  eliminate   the  urban-rural  income  gap   or to  equalize  the  returns  to  education and other individual characteristics.  China’s urban-rural income gap has shown little sign of declining despite substantial easing of the  restrictions   on   migration   and   the   growing   number   of   migrants.   A   variety   of   factors   could  contribute to the persistence of spatial differences. One factor is non labor income, which accounts  for nearly half the income gap. Income inequality number is maybe not so accurate because of such  a huge number of migrations from rural to urban areas, but the migration is not likely to reduce  gaps  in some forms of non-labor income such as  housing-related  income and  pensions. Also,  migration may not be able to eliminate the gap because variables other than income may affect  decisions to move. Other relevant factors include access to community networks and support  systems,   farm   labor   requirements,   job   discrimination,   incomplete   information   about   living  conditions and employment opportunities, higher costs of living (especially housing) in cities, and  access to schooling and other public services.
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