Agglomeration and selection effect for the wage gap between cities in China: a study using the approach of unconditional distribution feature and parameter correspondence

ZHANG Guofeng1 WANG Yongjin2

(1.School of International Trade and Economics, University of International Business and Economics)
(2.School of Economics, Nankai University)

【Abstract】Optimizing the income distribution and narrowing the income gap are the key policies of the 13th Five-Year Plan. Based on the data from the National Population Sample Survey in 2005, this paper attempts to be the first to analyze the sources of the wage gap between cities in China through agglomeration and selection effect, using the approach of unconditional distribution feature and parameter correspondence. The research findings are as follows. Firstly, both agglomeration and selection effects are important sources of the wage gap between cities, in which the agglomeration effect dominates. However, neglecting the selection effect will severely overestimate the agglomeration effect. Secondly, the high-wage workers and low-wage workers coexist in the megalopolis. The medium-wage workers are mainly clustered in the middle-scale cities. Thirdly, the high-wage workers benefit more through the agglomeration effect in the large cities, and wage inequality in these cities is more remarkable. Thus the wage gap between cities is even more pronounced for high-wage workers. Finally, high-wage workers are mainly concentrated in the private firms of large cities. In addition, the workers of private firms are the main embodiment of the wage gap between cities, who benefit more from the agglomeration effect.

【Keywords】 wage gap between cities; agglomeration effect; selection effect;

【DOI】

【Funds】 National Natural Science Foundation of China (71573141) National Natural Science Foundation of China (71673150) Humanities and Social Sciences of the Ministry of Education of China (16JJD790010)

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    Footnote

    [1]. ① In theory, wage premium in large cities refers to labor with a certain skill to earn higher wages in large cities. In the light of Glaeser and Mare (2001) and Zong and Zhou (2015), wage premium in this study refers to the higher wage level in a general sense in large cities, and also involves wage gap as a result of a discrepancy in skill. [^Back]

    [2]. ① In this paper, real wage refers to the labor wage level, minus provincial-level price index, and residual wage is the real wage with labor individual characteristics under control. [^Back]

    [3]. ① For statistical results, please refer to the public attachment of the website of the China Industrial Economics (http://www.ciejournal.org). [^Back]

    [4]. ① Truncate or sort is related to the symbol of the estimated value of the parameter. [^Back]

    [5]. ① For the expression of the objective function, please refer to the public attachment of the website of the China Industrial Economics (http://www.ciejournal.org). [^Back]

    [6]. ① For the calculation equation, please refer to the public attachment of the website of the China Industrial Economics (http://www.ciejournal.org). [^Back]

    [7]. ① The comparison variable is the residual wage logarithm. For the estimations of the robustness test of the urban division standard, please refer to the public attachment of the website of the China Industrial Economics (http://www.ciejournal.org). [^Back]

    [8]. ① For the mean value statistical results and the distribution comparison results of labor real wage and residual wage in four cities, please refer to the public attachment of the website of the China Industrial Economics (http://www.ciejournal.org). [^Back]

    [9]. ① For the description of statistical results, please refer to the public attachment of the website of the China Industrial Economics (http://www.ciejournal.org). [^Back]

    [10]. ② For the estimations, please refer to the public attachment of the website of the China Industrial Economics (http://www.ciejournal.org). [^Back]

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This Article

ISSN:1006-480X

CN: 11-3536/F

Vol , No. 12, Pages 60-78

December 2018

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Article Outline

Abstract

  • 1 Introduction
  • 2 Literature review
  • 3 Data description and descriptive analysis
  • 4 Estimation model setting
  • 5 Analysis of estimations
  • 6 Conclusions and policy implications
  • Footnote

    References