This study assesses how the transfer of rural labor to non-farm sectors affects China's national economy and the role the agricultural sector plays with respect to rural-urban migration. Econometric models using official Chinese statistics are used to: evaluate the marginal productivities of rural labor in agriculture versus non-agriculture; identify determinants of rural labor transfer; and assess the socioeconomic impacts of these transfers. It is concluded that though agricultural growth stems problems relating to over-urbanization, there are significant economic costs and undesirable social consequences associated with under-urbanization. Gains brought about by flexibility in the transfer of rural labor to non rural labor include higher GDP and reduced discrepancies in living standards for rural and urban populations.