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agriculture (Cook 1999), producing an increasing pressure to reform thehukou system. As the result of labor mobility from agricultural to nonagriculturalsectors and from rural to urban areas, labor markets began todevelop.The gradual abolition of institutional obstacles has been the key to increasedlabor mobility since the 1980s. Observing the diminishing capacity of ruralsectors to absorb surplus labor, in 1983 the government began allowingfarmers to transport and market their products beyond the local market– the first time in several decades that Chinese farmers had the legal rightto do business outside their hometowns. In 1984, regulations were furtherrelaxed, and farmers were encouraged by the state to work in nearbysmall towns where emerging Town and Village Enterprises (TVEs) wereseeking labor. Another major policy reform took place in 1988, when thecentral government allowed farmers to work in enterprises and run theirown businesses in cities, provided that they were self-sufficient in staplefoods.In the early 1990s, the central and local governments adopted variousmeasures to encourage labor mobility between rural and urban areas andacross regions, further relaxing the hukou system. For example, somecities issued blue-stamp hukou identification to those who migrated to thecities and paid a certain amount of money, invested in local business, orbought an expensive house. Despite the reluctance of some larger cities toimplement these new regulations, the central government did legitimizehukou reform as part of its efforts to develop a market economy.This reform was retrenched in the late 1990s when cities like Beijing,Shanghai, and Wuhan enacted employment protection policies andmade hundreds of industries and positions available only to laid-off andunemployed urban workers; rural migrants could not apply. However, anew round of economic growth and export expansion created more jobopportunities, even causing a local shortage of rural migrants in coastalareas since 2003 (Wang et al. 2005). This has provided a looser employmentenvironment in which cities can further deepen hukou system reform.246The gradual reform of the hukou system since the beginning of thetwenty-first century can be characterized as a bottom-up process – that is,a relaxation of hukou control beginning with small towns and graduallyextending to midsized and large cities. The hukou reform in over 20,000small towns has been characterized as “requiring minimum conditions andcomplete opening-up.” After years of experimentation in some regions, in2001 the Ministry of Public Security (MPS) initiated reform of the hukou