In urban China, urban resident annual earnings are 1.3 times larger than long term rural
migrant earnings as observed in a nationally representative sample in 2002. Using
microsimulation, we decompose this difference into four sources, with particular attention to
path dependence and statistical distribution of the estimated effects: (1) different allocation to
sectors that pay different wages (sectoral effect); (2) hourly wage disparities across the two
populations within sectors (wage effect); (3) different working times within sectors (hours
effect); (4) different population structures (population effect). Although sector allocation is
extremely contrasted, with very few migrants in the public sector and very few urban
residents working as self-employed, the sectoral effect is not robust to the path followed for
the decomposition. We show that the migrant population has a comparative advantage in the
private sector: increasing its participation into the public sector does not necessarily improve
its average earnings. The opposite holds for the urban residents. The second main finding is
that population effect is significantly more important than wage or hours effects. This implies
that the main source of disparity is pre-market (education opportunities) rather than on-market.