UCLA

Labor force is very important to drive urban development. Labor contributes skills and generate positive knowledge spillovers to urban economy, especially high-skilled labor. Labor also constitutes the tax base that determines the fiscal wellness of the city. Moreover, the major source of urban and regional population change is through internal migration. Given the importance of labor in urban economy, there has been long-lasting research interests in factors that drive inter-city migration. Jobs, amenities and living costs are regarded as the main determinants of labor migration. Recent research also points to the importance of local informal institution, such as culture and attitude to migration, in urban development. However, labor mobility within the national border can face formal policy barriers as well. In China, due to the household registration system, many migrants cannot access local social services in host cities due to the lack of local Hukou, especially social insurances and housing provident funds. Due to the decentralized financing and governance of these social services, cities vary greatly in their coverages of social services among urban migrants. Using this cross-city variations, I define local inclusiveness as the extent to which a city government allows migrants to access local social insurances and housing provident funds and construct an urban inclusiveness index to measure it. I examine how local inclusiveness affects urban development via the quantity and quality of labor supply. Specifically, I study three inter-related questions. First, at the individual level, how does local inclusiveness affect migrants’ choices of destination cities? Second, at the city level, how does local inclusiveness impact urban development through aggregate urban labor supply? Third, what factors may explain a city’s inclusion for migrants? Using a conditional discrete choice model to examine the role of local inclusiveness in migrants’ choices of destinations, I find inclusive cities attract more migrants, controlling for expected wage, housing costs, and a host of urban characteristics that affect quality of life. I then construct a two-sector structural model to estimate how urban inclusiveness affects urban productivity through the quantity and the composition of labor supply. I use historical cultural openness to instrument for urban inclusiveness. I find more inclusive cities perform better economically through higher labor supply, especially high-skilled migrants. Using spatial statistics to correct for spatial error dependence, I find a city’s inclusiveness towards migrants largely depends on its fiscal capacity and labor demand, instead of cultural factors. This research reveals the connection among local inclusion, internal migration, and urban development in China. Evidence suggests the importance of attracting and retaining migrant labor through an inclusive local policy agenda.