Competitive Pressures on China: Factor Rewards and Migration

Our objective is to assess personal income under perfect competition, when factors are rewarded according to their productivities, and to contrast the ensuing distribution with the status quo. Competition will yield winners and losers, both in terms of factor claims and in terms of regions or provinces. Income differences will press people to migrate. To analyze this, we divide China into 30 input-output sectors and 27 provinces; we maximize domestic final demand, while preserving its proportions in each province, subject to material balances and factor constraints. The shadow prices to the constraints represent competitive commodity prices and factor rewards. Unskilled labor would stand to lose and, therefore, inequality would mount. The pressure on interprovincial migration would be enormous with 10 to 20% of the people on the road. The flipside is the great potential for improvement of the average standard of living.