We study the implications of migration barriers for labor misallocation by exploiting China’s hukou reform in the 2000s. The reform relaxed restrictions on rural migrant workers by granting them the local hukou status. We show that the reform increased employment by 26.0%, capital by 9.1%, and decreased the marginal revenue products of labor by 30.2% for baseline high-productivity firms relative to low-productivity firms in treated prefectures compared to untreated ones. This suggests a more compressed distribution of marginal labor products and improved allocative efficiency, as labor has been reallocated toward ex-ante more productive firms. Geographically, the gains in efficiency are attenuated in later-reformed regions, as they are exposed to strong competition from "early reform adopters". We further document firm-level heterogeneity in employment and productivity responses to the reform. At the aggregate level, the reform led to a 3.5% increase in aggregate productivity and a 6.48% surge in manufacturing output.

The canonical prediction of life-cycle models, that individuals smooth consumption over their lifetime, has been mostly tested for developed countries and found little empirical support. We provide a novel, developing country perspective by analyzing patterns of life- cycle consumption, income, and savings rates in India. In contrast to the U.S., Indian households exhibit no growth in nondurable consumption expenditures after adjusting for family size. We present evidence that saving for lumpy investments in consumer durables is a key driver of high savings rates and flat nondurable consumption over the life cycle in India.

Does consumption smoothing of the elderly across time and individuals indicate the efficiency of the overall insurance mechanisms? What is the extent of suboptimality in market and non-market insurance? To answer these queries, we employ China Health and Retirement Longitudinal Study (CHARLS) panel data covering 2011, 2013, 2015, and 2018 and examine the effectiveness of both institutional and personal insurance channels for elderly individuals in China. While the conventional tests reasonably support consumption smoothing across time and individuals against adverse health shocks, especially for basic food consumption, our results show that the welfare costs associated with such health shocks are not necessarily small, especially in rural areas. These findings call for strengthened long-term care and pension systems as well as other social safety nets, which can be welfare-enhancing even when consumption is not sensitive to shocks.