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Although significant earnings differentials between urban residents and rural migrants in Chinese cities have been revealed in many studies with single cross-sectional data, it is still not clear how the wage gap between the two groups of workers evolves over time. To fill the research gap, this paper uses a dynamic wage decomposition method and an economic assimilation model with repeated cross-sectional data from China Income Distribution Survey 1999 and 2002 to investigate changes in wage gap between urban residents and rural migrants from a dynamic perspective, and to explore the wage assimilation for new rural migrants towards their urban counterparts and its determinants in Chinese cities. Two technique problems associated with an economic assimilation model are solved: the lack of common support and identification problems. Two interesting results are found. First, there is a growing wage gap between rural migrants and urban residents across the two surveyed years, mainly caused by the decline in the rate of return to education for rural migrants. Second, rural migrants’ wages may generally assimilate to those of their urban counterparts, but well-educated rural migrants and those residing in capital cities (i.e., large cities) seem to have no significant advantage in the assimilation process. Both findings imply the current institutional arrangements in the China’s urban labour market tend to favour less-educated rural migrants, which in turn may restrict new rural migrants from investing more in their human capital.

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