China & World Economy / 136–165, Vol. 30, No. 1, 2022

Self-employment in Rural China: Its Development, Characteristics, and Relation to Income

Björn Gustafsson, Yudan Zhang

Abstract

Changes in the employment structure in rural China were studied with a focus on off-farm self-employment. Data from the Chinese Household Income Project surveys were used, covering the same 14 provinces from 1988 to 2018. We found that the proportion of adults in rural China with self-employment as their primary form of off-farm employment increased from only 2 percent in 1988 to 11 percent in 2013, with no further increases through 2018. In 1988 and 1995, the rate of self-employment was highest in the eastern region but this regional pattern subsequently disappeared. The probability of being self-employed in rural China was higher among married males than among unmarried persons. Having a migration experience increased the likelihood of being self-employed. Since 1995, self-employed households have had a higher average income than other categories of household. Based on estimates of income functions, we conclude that the income premium from being self-employed increased rapidly from 1988 to 1995 to become remarkably large when only a few adults were self-employed. However, as a larger fraction of the rural population entered self-employment, the payoff from being self-employed has rapidly diminished, although it was still substantial in 2018.