Although significant earnings differentials between urban residents and rural migrants in Chinese
cities have been revealed in many studies with single cross-sectional data, it is still not clear
how the wage gap between the two groups of workers evolves over time. To fill the research gap,
this paper uses a dynamic wage decomposition method and an economic assimilation model with
repeated cross-sectional data from China Income Distribution Survey 1999 and 2002 to investigate
changes in wage gap between urban residents and rural migrants from a dynamic perspective, and
to explore the wage assimilation for new rural migrants towards their urban counterparts and its
determinants in Chinese cities. Two technique problems associated with an economic assimilation
model are solved: the lack of common support and identification problems.
Two interesting results are found. First, there is a growing wage gap between rural migrants
and urban residents across the two surveyed years, mainly caused by the decline in the rate of
return to education for rural migrants. Second, rural migrants’ wages may generally assimilate to
those of their urban counterparts, but well-educated rural migrants and those residing in capital
cities (i.e., large cities) seem to have no significant advantage in the assimilation process. Both
findings imply the current institutional arrangements in the China’s urban labour market tend to
favour less-educated rural migrants, which in turn may restrict new rural migrants from investing
more in their human capital.