A Theoretical Analysis of the Evolution of China’s Labor Market from Segmentation to Integration: An Expansion of the Classic MP Model

In this chapter, a theoretical framework is proposed in order for us to construct an extended model of the classic MP model for China’s dual labor market. Based on the history and evolutionary process of the labor market described in Chapter 3 , it is then proposed that the existing segmentation of China’s labor market is not only double duality as in traditional SLM theory but also a more complex form of segmentation. We classify the main factors affecting the integration of the labor market, analyze the functions of each, and then in conjunction with China’s realities we propose that the current segmentation of China’s labor market is double duality based on the household registration system and the ownership, that multi-tiered segmentation has been formed by the superposition of endogenous segmentation, spatial segmentation, and the group effect, and that individual behavior and choices on the micro level can strengthen or weaken such segmentation. Then, based on the duality, we construct a search model that includes the heterogeneity of both workers and enterprises and following the location of static equilibrium and dynamic analysis of the model, simulation is used to explore the trends of this duality and to cover the conditions that promoting labor market integration.