Internal Migration Decision and Rural Income Inequality: A Counterfactual-Based Gini Decomposition Analysis

We examine the decision between internal migration and home production for Chinese rural households and its impact on rural income distribution. By constructing counterfactual scenarios under which households are allowed to switch freely between internal migration and home production, we find that the migrant households in the studied region could have earned higher simulated income if they choose to work in local sectors, with potential sample selection bias corrected by the two-step Heckit method. Based on the counterfactual results, we conduct a Gini decomposition analysis and illustrate that rural income inequality would also be reduced if migrants choose to work locally. The findings are compatible with the fact that a nontrivial portion of the internal migration in China tends to be involuntary.