Is Life More Risky in the Open? Household Risk-Coping and the Opening of China’s Labor Markets

This paper looks at the effect of access to off-farm employment opportunities on household exposure to unexpected shocks originating in the agricultural economy. Farm households with improved access to both migrant and local labor markets are better able to cope with shocks to agricultural production. The risk-coping benefits of improved access to off-farm markets are not shared evenly within or across villages. Wealthier households show a more pronounced reduction in exposure to shocks, including less variable income and consumption, and a reduced impact of production shocks on expenditures related to the education of children. ∗Assistant Professor, Department of Economics, Michigan State University. Contact Information: 101 Marshall Hall, Michigan State University, East Lansing, MI, 48824 ([email protected]). I gratefully thank Liqun Cao and Xiaohui Zhang of the Survey Department of the Research Center on the Rural Economy (RCRE) at the Ministry of Agriculture in Beijing for making RCRE’s household and village survey data available for this research, and for their assistance in arranging follow up interviews and surveys in sampled villages. Much thanks to Pranab Bardhan, Paul Gertler, Albert Park, Scott Rozelle, John Strauss, and Yongmei Zhou for many helpful comments. I am solely responsible for all deficiencies.