Hukou Changes and Subjective Well-Being in China

The hukou system was introduced in 1958 as a measure to foster the Big Push industrialization strategy of the regime at that time. To quickly accumulate capital in the newly nationalized manufacturing sector, which was mostly located in cities, the government collectivized the rural population as well as directed the food and raw materials production. It then elected to become the sole and mandatory buyer and seller of rural produce in order to set the prices at which agricultural inputs were sold. The regime also registered each person as rural or urban in 1955; therefore implementing the hukou system three years later, it has prevented rural hukou holders to become urban hukou holders without the prior approval of the destination.

The annual quota of conversions is minimal, being estimated in about .15–.2 % of the non-agricultural population (Chan 2009). Rural to urban hukou changes are allowed in a variety of circumstances, such as to undertake tertiary education, a new job (typically in the party or military), being sponsored (e.g. artist or employer), and, more recently, as a result of making a substantial investment. Hukou change is uncommon in the case of marriage (children receive the hukou of the mother), and land expropriation as is highlighted in Sect. 3.

The standard deviation of answers to each question is similar, enabling one to add the 12 scores in a single index.

Within the rural household sample children make up only a small proportion of the respondents (6 % in expropriated families and 4 % in those not expropriated, respectively).

The panel random estimator transforms the data by subtracting from each observation a portion θ of its time average, where θ depends on the variance of u _i and v _it and the number of period for which data are observed (Wooldridge 2010). This quasi-demeaning of the data transforms Eq. (1) into:whose estimation yields consistent estimates under the assumption of orthogonality between u _i and the observed covariates as well as of \(u_{i} \sim N(0,\sigma_{u}^{2} )\) and \(v_{it} \sim N(0,\sigma_{v}^{2} )\). Although θ is not known in practice it can always be estimated (various methods are discussed in Wooldridge 2010). An estimated θ close to zero results in random effect estimates being close to those obtained by pooled OLS, implying that time-invariant unobserved heterogeneity is relatively unimportant, as the variance of u _i is small relative to that of v _it . Conversely and more commonly, if the estimated θ is close to 1, then the variance of u _i is large relative to that of v _it , and the bias caused by unobserved time-invariant heterogeneity is large.