Jingyi
Fang.

We study the implications of migration barriers for labor misallocation by exploiting China’s hukou reform in the 2000s. The reform relaxed restrictions on rural migrant workers by granting them local hukou status. Employment increased by 26.0%, capital by 9.1%, and marginal revenue products of labor decreased by 30.2% for baseline high-productivity firms relative to low-productivity firms in treated prefectures compared with untreated ones. This suggests improved allocative efficiency as labor moved toward more productive firms. Efficiency gains were attenuated in later-reformed regions exposed to competition from early reform adopters. At the aggregate level, the reform increased productivity by 3.5% and manufacturing output by 6.48%.

The canonical prediction of life-cycle models—that individuals smooth consumption over their lifetime—has mostly been tested in developed countries and has found little empirical support. We provide a developing-country perspective by examining life-cycle consumption, income, and savings in India. Unlike in the U.S., Indian households exhibit no growth in nondurable consumption after adjusting for family size. Saving for lumpy investments in consumer durables is a key driver of high savings rates and flat nondurable consumption over the life cycle.

Does consumption smoothing indicate efficient insurance mechanisms for older individuals? Using China Health and Retirement Longitudinal Study panel data from 2011, 2013, 2015, and 2018, we examine institutional and personal insurance channels. Conventional tests support consumption smoothing against adverse health shocks, particularly for basic food consumption. Yet the welfare costs of these shocks can be substantial, especially in rural areas. The findings suggest that stronger long-term care, pension systems, and other social safety nets can improve welfare even when consumption appears insensitive to shocks.