Exploring data from the urban and migrant household surveys of the Chinese Household Income Project (CHIP), this paper dissects the underlying causes of the depressing effect of the hukou system on migrant household consumption into two channels. On one hand, the disentitlement to local urban hukou promotes temporary migration and incentivizes migrant households to save their transitory income. On the other hand, it creates financial insecurity through barriers to employment, social welfare, and medical insurance, etc., thereby encouraging precautionary saving. Factors reflecting these considerations, such as medical and pension insurance, the duration of migration, and local homeownership, are specifically modeled, and are found to contribute to the discrepancies in consumption between migrant and local urban households, among other factors. In addition, the marginal propensity to consume exhibits heterogeneity across households; it is higher with a longer duration of migration, local homeownership, and self-employment. The lack of these attributes further reinforces the reluctance of migrant households to consume.
consumption migrant household marginal propensity to consume