Wage differences in Urban Informal Sector of China Essay

Wage differences in Urban Informal Sector of China - Essay Example Though the study of migration is not new in economics, the study considered in this context is important due to the wage differences between urban and rural areas and the informal sector of the urban areas. In this study of migration of China, the household was recognised regarding migration. Instead of number of people migrated to urban areas, the households migrated are been registered in China. Out of urban-urban, rural -rural migrations, the rural -urban migration exposed the wage differences issue. 1 The migration from rural to urban is so much important as it was assumed that the hukou system of 1950s was proposed to tie the farmers to the land. This is for supplying low cost agricultural products to the industrial sector. This restricted the mobility of the people during the great famine during s1960s. The farmers depended on collective farming and the opportunity cost for migration was very high. The migration was made easy and speeded up when china started economic reforms in 1978. 2 The urban informal sector of developing countries like China absorbs who cannot find productive employment. If this point is ignored, it can be stated that it will contribute to employment and income generation. The legal status of the activities of the companies in the informal sector will fall outside the reach of the government regulations. This is due to the size of the companies having less than 10 employees and usage of simple and traditional technology. In China the government is limited to administrative resources tend to focus on large scale operations. The minimum wage legislation is enforced only in large scale establishments and informal sector was out of the reach of that legislation. One more reason for non implementation is that the companies seize to exist when the legislation is implemented. This needs the study of the determinants of employment in the urban informal sector in China. The size of the labour force of urban informal sector is due to the interactions wi thin the economy as a whole. The absorption capacity rural areas regarding labour decides the migration and wage differences in the system. Though the urban informal sector is less in wages than the formal sector, the migration continues due to the still lesser wages in the rural areas. The urban informal sector absorbs very poor people as labour. As the sector provides income continuously without security, the poor and semi qualified people are absorbed by this sector. Particularly unskilled labour are employed and their lack of skills result in lower wages. 4. Effects of Informal Sector In the globalisation and economic reforms period the countries like china are catching up the opportunities of trade and development. International specialisation has become more effective during the period of specialisation and the liberalisation resulted in lowering the transport costs. The informal sectors discussed the macroeconomic role of labour reallocation. This analysed the effects of economic growth, production and trade patterns. This included the analysis of wages and there existed a substantial difference between the wages of formal and informal sectors. This resulted in the differences in the effects of formal and informal sectors on macro economic effects. The simulation regarding the allocation of workers, has put them across low and