This paper examines the migration decisions of Chinese Japonica rice farmers interms of wage gaps. We use a non-separable agricultural household model to estimate the internal wages of the output supply. As a result, internal wages, which denote the
reservation wages of Japonica rice cultivation, are substantially lower than market wages in Japonica rice production and the wage levels in township and villageenterprises. Furthermore, we find that internal wages are substantially lower than thewage levels in the urban construction sector. Finally, we analyze the separation property in this agricultural household model. The test for equality of means between internal and market wages is rejected at a 1 % level of significance. We conclude that an efficient labor market does not yet exist in rural China.