Abstract: Aiming at the issue of significant differentiation of inter-provincial capital returns, this paper takes into account the labor migration factors and explores the measurement method of labor migration in the field of industry, then it conducts a day-parting theoretical and empirical study from such aspects as labor migration mechanism, capital and labor substitution and the differentiation mechanism of capital returns. The results show that wage gap is the major cause of labor migration, the shift from excess supply of labor factor to shortage in the labor outflow provinces can support the academic view of demographic dividend being shutdown. At the same time, because of the existence of the migration puzzle, labor supply has kept a growing trend in labor inflow regions. Along with the demographic dividend being shut down, the labor outflow regions have to solve the problem of rising labor price through continuous substitution of labor by capital, which may result in the accelerating diminish of capital marginal output and declining returns. The supplement of labor gap in inflow regions can avoid the declining capital returns that may be resulted from substitution of labor by capital. The labor supply changed by migration and the heterogeneous substitution have finally led to serious consequences of provincial differentiation of capital returns.

Key words: capital returns; labor migration; demographic dividend; factor substitution