Using the data from the three waves (1995, 2002, and 2008) of the Chinese Household Income Project (CHIP), this paper investigates the impact of land tenure security on farmers’ labor market outcomes in rural China. To identify the effect of land tenure security, this paper used difference-in-differences strategy to control for time invariant heterogeneity and a number of observed time-varying economic characteristics for its validity. The paper finds that in response to more security land rights, both women and men increase their probability of wage employment participation.
JEL Classification: O15, J61, Q15, R23
Context of the study
Before the land tenure reform in 1978, China carried out collective farming, which was characterized by collective ownership and unified collective operation. Property rights were centrally controlled, and the most severe problem with collective farming was inefficiency.
The Household Responsibility System (HRS) had implemented in rural China in 1979 and was essentially completed by the end of 1983 (Lin 1992). Under the HRS, landholdings were distributed among households in a substantially egalitarian fashion (Burgess 1998). Practically, no rural households were landless (Zhang 2001). The underlying idea behind this institutional scheme was to give rural households relative freedom in their productive choices and to grant them secure land-use rights as a means of promoting individual investment. However, land ownership remains in the hands of collective village authorities; therefore, it could not be transferred between households, and land-use rights were contracted to the farmers for a short period of 1 to 2 years. In this context, security of rights over land depends mainly on two factors: the village authorities’ land management and the contractual status of the plot.
Today, under the framework of the HRS, there are five major tenure types in China (Brandt et al. 2002): responsibility land, grain ration land, contract land, private plot, and reclaimed land. Responsibility land is allocated on the basis of the number of family members, the number of laborers in each family, or the desire and ability of the household to engage in agricultural production. Grain ration land is typically allocated on the basis of household size to ensure that each household produces enough for its own consumption needs. The use of the land does not usually entail quotas or other obligations. A small amount of land was provided to rural households for private plots during the period of collective agriculture, and farmers retained this land when China reverted to family farming. Contract land is rented to households by the villages for a fixed cash payment. The length of these contracts varies considerably from community to community. Farmers can also acquire use rights to reclaimed land that was previously uncultivated. There are usually no quotas or fees tied to the use of the land (Brandt et al. 2002, p. 73–74). Each tenure type encompasses a different set of rights and obligations for rural households and guarantees a different level of security. A household’s use rights over private plot and grain ration land can be considered comparatively secure and stable. Responsibility land, contract land, and reclaimed land, on the other hand, impose various obligations, such as the delivery of a mandatory quota of grain to the state at below-market prices. Those three types of land can be quite easily transferred and reallocated among households by the collective. A survey by the State Statistical Bureau in 1992 demonstrated that grain ration land only made up 8.4% of cultivated area, and responsibility land covered 84.5% of cultivated land (Cheng and Tsang 1996).
Although the HRS intended to implement the land-use rights through a contractual framework, the contracts, in particular, the contract’s duration, have not been respected by village collective authorities, who have periodically approved reallocation of land among household villagers. As discussed in Jacoby et al. (2002), reallocation of lands is promoted by local governments because of the following: first, following the demographic change within households, it helps to keep an egalitarian distribution of land (Kung, 1994); second, it reduces the inefficiencies often created by the distribution of land which happens with households’ demographic changes, especially in contexts with land rental and labor markets failure (Li 1999; Benjamin and Brandt 2000); and third, it represents for local governments a tool to collect taxes and achieve production quotas (Rozelle and Li 1998).
Periodic land reallocation has created uncertainty in rural households about the durability of land contracts and the risk of land expropriation in the future, thereby discouraging some households to decide to allocate labor to migration, to commit labor to off-farm employment, or to rent land.
Realizing that frequent land reallocation and abusive land requisition has led to the insecurity of the land-use rights of farmers, the government has taken various action to promote land tenure security (Tao and Xu 2007). In 2002, China passed the Rural Land Contracting Law (RLCL) into law (Li 2003). This law goes beyond previous attempts to secure the land rights of farmers.Footnote 1 The RLCL requires farmers and collectives be issued with written contracts and certificates to confirm their land-use rights. These land contracts have a duration of 30 years. The RLCL focuses on four areas, namely (i) a stricter definition of land rights as property rights rather than just private contracts, (ii) a ban on large-scale reallocations of land and limiting small-scale readjustments with clear conditions, (iii) permitting land transfer between households, and (iv) a commitment to issuance of land documents (Deininger et al. 2012).
The RLCL provides a legal basis for issues relating to tenure security, marketability, and enforcement of rural household land rights that had previously been dealt with only through administrative means. By giving a legal backing to secure 30-year rights and eliminating the scope for further readjustment of land, the RLCL aims to promote investment, diversification, and productivity. Land rights remain with the household even if some members change their registration status. A second goal of the RLCL is to create a basis for more impersonal transfers of land. Such transfers are of increased relevance to ensure adequate land utilization since, with migration or development of the rural non-farm economy, households respond to non-farm opportunities. For this purpose, the law allows land rights to be exchanged and to be leased, transferred, and assigned to others much more easily than was possible before (Deininger et al. 2004). The law also emphasizes the equality of men and women, stipulating that in case of marriage, divorce, or death of the husband, the rights to land of the spouses are maintained unless they receive a new land allocation in their new village.
Table 1 presents the security land rights by villages for those years available in our data set (i.e., 1995, 2002, 2008). Land security at village level is measured by means of an indicator that combines information on the share of grain ration land relative to the village total land and whether or not the village retained some flexible land. Section 4.1 provides details on the data set and the construction of the security land indicator. The table shows a total of 795 villages in 1995, and 847 in 2002, among which there are 33 and 53% of villages, respectively, with higher security land rights. In 2008, the numbers of villages is 271, and the villages with higher security land increased to 91%. The statistics summary shows that after the policy change, there was an improvement in land security rights across villages. Thus, the empirical analysis in this paper is based on a comparison across time of labor market outcomes for adults in villages with (i.e., treatment group) and without (i.e., comparison group) land security rights.