Internal Migration and Extended Families in China

In this paper, I study how rural-to-urban migration in China affects households’ inter-generationalbehavior, and the effects of policies targeting migrant households on their welfare. Internal migrationfrom rural to urban areas can have significant welfare effects on migrants and their extended families.In China, migration is often temporary, and most family members of migrant workers are left behind.In these households, many left-behind grandparents look after the children of migrating parents. How-ever, the behavioral and welfare effects of government policies directed towards rural households withpotential migrants remain unknown.Using five Chinese data sets on the migration patterns, education choices, financial transfers, andhealth of multi-generational families, I first present a rich set of stylized facts about migration andhousehold behavior. The evidence shows that in many rural households, parents migrate to urbanareas for work when healthy grandparents are able to provide childcare. When the grandparentsare sick, migrating parents return to the rural area to provide elder care and pay for their parents’healthcare. With the facts as a guide, I develop and estimate a structural model of the behavior ofmigrants and their families. The model features an informal limited-commitment contract over childcare, financial transfers, and elder care. Parents and grandparents play a sequential game by choos-ing migration status, informal contract status, remittances, children’s education, and grandparents’healthcare. The estimates suggest that poor households adopt the informal contract so that ruralconsumption, education, and healthcare are funded by the migrants’ remittance.I then use the model to evaluate the effects of a set of hypothetical government policies. An urbaneducation subsidy promotes children’s education, increases the migrants’ consumption in the urbanarea, and does not affect the grandparents’ welfare. But it does not alleviate the problem of childrenleft behind as the government had hoped. An improved insurance coverage that lowers out-of-pockethealthcare costs would reduce the grandparents’ demand for the informal contract. It would generatea welfare gain to the grandparents, discourage parents’ migration, and increase children’s education.The policy counterfactual outcomes imply that policies intended to improve the welfare of one familymember can affect the welfare, consumption behavior and migration decisions of all three generationsthrough intra-household cooperation. The design of these policies should account for intra-householdresponses.

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