Are workers close to cities paid higher nonagricultural wages in rural China?

It is widely recognized that nonagricultural earnings are crucial for the welfare of rural households in developing countries. In this study, we investigate whether workers close to cities are paid higher nonagricultural wages than workers in outlying rural areas. We find that workers close to urban areas not only benefit from more opportunities to engage in nonagricultural activities, but also from better paid jobs. In addition, we provide evidence on the transmission channels at work. The issue of spatial differences in nonagricultural earnings that we highlight is extremely serious for rural China where, because of the strong institutional restrictions on labour mobility, living conditions in an individual’s birthplace still significantly affect his well-being.