If you pay peanuts . . . Part Two (self fulfilling prophecy edition): if you treat people badly, you get the worst out of them

Social Identity and Inequality: The Impact of China’s Hukou System
Date: 2012-03
By: Afridi, Farzana (Indian Statistical Institute)
Li, Sherry Xin (University of Texas at Dallas)
Ren, Yufei (Union College)
URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp6417&r=exp
We conduct an experimental study to investigate the causal impact of social identity on individuals’ response to economic incentives. We focus on China’s household registration (hukou) system which favors urban residents and discriminates against rural residents in resource allocation. Our results indicate that making individuals’ hukou status salient and public significantly reduces the performance of rural migrant students on an incentivized cognitive task by 10 percent, which leads to a significant leftward shift of their earnings distribution. The results demonstrate the impact of institutionally imposed social identity on individuals’ intrinsic response to incentives, and consequently on widening income inequality.