This paper develops a search equilibrium model of rural-urban migration to
study the economic consequence of regionally unbalanced development in China.
Due to the enforcement of household registration (hokou), illegal migrants from
the rural area may search for and take a job in the city, though they suffer a
wage mark-down as well as a faster break-up. We characterize the equilibrium
wage discount, the job finding rate, and the unemployment rate in the urban
labor market. We find that the enforcement of the household registration rule
can discourage illegal migration, leading to a higher job finding rate and a lower
urban unemployment rate.