Social Identity and Inequality: The Impact of China’s Hukou System

Farzana Afridi, Syracuse University
Sherry Xin Li, University of Texas at Dallas

We conduct an experimental study to understand the impact of China’s household registration or hukou system on the widening economic disparity in urban China. We argue that decades of differential treatment of rural-urban residents by the hukou system and its resulting salience in Chinese society may have affected individual behavior and response to economic incentives. Initial results suggest that, indeed, making hukou identity salient affects individuals’ economic performance. We also find that hukou identity influences earnings significantly through its impact on individual responses to economic incentives. The reduction in individual performance and earnings suggests loss of economic efficiency and, essentially, a conflict between the traditional hukou system and the market-oriented economy in China.