Urban Agglomeration, Externality And Labor Mobility

The motivation and the flow of the labor migration has been an important research topic among economics, demography, geography and other subjects, it also has been the reality concern for policy makers. So far, the researches about this topic are mostly about the wage differences, social networks, the household registration system, the individual or family characteristics, and so on, the assumptions of the study are constant returns to scale and labor market equilibrium. In recent years, some researchers such as Krugman and Fujita, started to use the new economic geography theory to explain the process of urban agglomeration. The new economic geography theory suggests that:on one hand, due to economies of scale and transport costs, manufacturing companies tend to choose areas with larger market potential for their production, which is called "backward linkages"; on the other hand, if the supply of goods in the area is plentiful, the commodity price index will be low, labor tends to choose to live and work in this area, which is called "forward linkages". The "forward linkages" of the new economic geography theory breakthrough the assumptions of the classical economic theory about constant returns to scale and perfect competition in the labor market, it provides a new perspective for the microscopic mechanism of labor mobility. However the relevant empirical researches of new economic geography mainly focus on "backward linkages."From a practical perspective, "World Development Report 2009:Reshaping Economic Geography" points out that in the United States, Japan, India and other countries, people left home, gathering in a few cities in the country, enduring the pain of being away from their family members and friends, enduring the unpleasant from urban congestion. Similarly, China is experiencing an unprecedented large-scale labor mobility, the labors flow to the Pearl River Delta, Yangtze River Delta, Beijing-Tianjin-Hebei metropolitan region, and the intensity of labor inflows shows the feature that "the stronger become even stronger". It’s hard to leave Beijing, Shanghai and Guangdong for labors. This allows us to think about why the labor force gathering in cities, especially in large cities? What prompt labors to aggregate in urban? According to the classical theory of labor mobility, interregional labor flows often follow higher wages, but the question is that why the cities, especially large cities have higher wages?In view of the research background and purpose mentioned above, this dissertation focuses on why labors continue to gather in cities, especially large cities? What is the mechanism behind this issue? In other words, how urban agglomeration affects labor mobility? Focusing on the core issue, this dissertation uses the monetary externalities and technical externalities of urban agglomeration, and tries to answer the question of how market potential impact labor mobility? Considering labor heterogeneity, does market potential still influence wages of labors? What is the difference between impacts of market potential on low-skilled and high-skilled wages? Which one is more conducive to increasing wages of labor mobility, diversified or specialized cities? Do the impacts of urban agglomeration externalities of technology of wages vary between different regions in China? The dissertation is divided into seven chapters. First two chapters are the theoretical part, providing theoretical support for the subsequent empirical analysis. The third chapter examines the relationship between urban agglomeration and labor mobility. The fourth, fifth and sixth chapters explore the mechanism of impacts of urban agglomeration on labor mobility. The final chapter is summarization and expectation. Specific arrangements are as follows:The first chapter is an introduction. The chapter focuses on the research background and research significance. This chapter clarifies the importance and necessity of thesis topics, states the research objectives and research strategies. According to the logic of the main research questions, this chapter introduces the main content and the framework of the dissertation and indicate the possible innovation.The second chapter is the theoretical basis and relevant literature. The dissertation reviews the theories and advances from three aspects. First, starting from the correlation theory of labor mobility, the dissertation describes the advantages and disadvantages of the new economic geography theory of labor mobility; second, it introduces the relevant empirical studies of labor mobility, clarifies the lack of domestic labor mobility empirical study from the perspective of the new economic geography; finally, combining the frontier theories and literature in agglomeration theory, this chapter interprets the mechanism of how urban agglomeration affects labor mobility from the perspective of monetary externalities and technological externalities, offering an entry point for the dissertation to explain why labors flow to cities, especially large cities.The third chapter studies the relationship between urban agglomeration and labor mobility. Most of the domestic researches concentrated in the provincial level, but the dissertation uses the prefecture-level cities’ (municipal districts) data, systematizes China’s current situation of the urban agglomeration in 2000 and 2010 and the labor inflows in different cities, provides descriptive statistics of urban agglomeration and labor mobility. Using geographic information system software, this part analyses the spatial concentration of labor flows, enhancing the perceptions of the relationship between urban agglomeration and labor mobility.The fourth chapter is about urban agglomeration, pecuniary externality and labor mobility. Based on the new economic geography model, the dissertation expands the labor mobility model by using Helpman (1998) CP model for reference. The innovation of this chapter is adding the housing price variable as the negative externality of urban agglomeration into the theoretical model, expanding the two-region model into the multi-region model, and using nonlinear regression models to accurately estimate the parameters of "forward linkages" in new economic geography model. In order to make sure the theoretical and empirical model is more adapted to the Chinese context, the dissertation uses the Chinese prefecture-level city (city area) data. This chapter studies the market potential’s impact on labor mobility from the provincial level and interprovincial level, indicates that one of mechanisms which can explain the reason labor force aggregate in cities, especially metropolitan cities, is pecuniary externality.The fifth chapter is urban agglomeration, pecuniary externality and wage differentials. The dissertation has put heterogeneity factors of labor into new economic geography wage equation, which made the theoretical model closer to real and also indicates the pecuniary externality of urban agglomeration impact on the wage of migrant labor force. In addition, most researches are based on macro-level statistical data, which may neglect individual properties of labor force and lead to measurement error. Therefore, the empirical part uses the migration dynamics monitoring survey data in 2010 according to National Health and Family Planning Commission of China. What’s more, considering the human capital of labor or skill level differences, the paper has also examined the potential impact on low-skilled and high-skilled labor market wage differentials.The sixth chapter is about urban agglomeration, technical externalities and labor mobility. Different with the domestic informed researches, considering both diverse specialized urban agglomeration and controlling the individual labor properties as fixed effect, the dissertation has applied quantile regression model to investigate how technological externality of urban agglomeration impact on migration wages which could be evidence and mechanism of technological externality of urban agglomeration, leading people constantly to gather to cities, especially large cities. Moreover, in view of regional disparity among eastern, central and western areas, the dissertation also conducts an empirical analysis from the perspective of regional differences separately.The seventh chapter states the main conclusion of the dissertation, as well as the relative policy suggestions and some future work that may be strengthened. According to the conclusions of core chapters with theoretical and empirical analysis, the dissertation proposed some implications around current migration policy and regional strategies, besides, the dissertation also points out the direction of future research and inadequacies.The main conclusions of the dissertation are as follows:First, due to the "price index effect" and "local market effect", inter-provincial migrant labor force tends to flow to areas with larger market potential. Places with larger market potential would attract much more manufacturers, so that the labor force living nearby can save transportation costs of goods and enjoy high accessibility to various types of goods. In addition, the firm’s profit and labor wages in these regions are usually higher, which further prompts labor to flow into the phenomenon well illustrates "forward linkages" of new economic geography theory in China. In respect to sub-industry market potential, the potential impact of tertiary industry plays an important role in the inter-provincial migration decisions; moreover, the impact of market potential is constantly strengthened, in contrast, the impact of the labor force costs is gradually weakened in the long term.Second, there are significant differences between factors affecting inter-provincial migration and provincial migration. From the size of the market situation in the sub-industry perspective, the impact of the market size of the tertiary industry on the inter-provincial migration is stronger, while the impact on provincial migration is weaker. The most important factor of inter-provincial migration is market potential, but the most important factor of provincial migration is wage. In addition, geographical distance and employment opportunities have significant impact on inter-provincial migration, however, the impact is not significant in the case of inside-provincial migration. The reason for the difference may be that the inter-provincial migration appears to be a more rational decision-making process, due to the existence of geographic distance, cost of migration is significantly increasing, meanwhile, inter-provincial migrants may pay more attention to market potential, employment opportunities, migration risk than mere wage factor.Third, the impact of market potential on wages is affected by labor heterogeneity. The market potential has a significant positive effect on the wage of migrant labor force, but after controlling individual labor properties, the impact of market potential becomes smaller, which concludes that previous domestic studies may overestimate the role of market potential. In respect to different skilled labors, education plays a larger role on wages of high-skilled labor, and the market potential has impact on low-skilled labor. Possible reasons are highly skilled workforce has the "home market effect, the price index and the knowledge spillover effect" as a "triple effect", but low-skilled labor only has the first two effects.Fourth, there are significant differences between the impact of diverse urban agglomeration and specialized agglomeration on wages. In contrast to the former domestic researches, the dissertation found that there is a "threshold" effect among the impact of specialized urban agglomeration on wages. When a region’s specialization level is lower than a certain "threshold", MAR externalities will have negative effect on labor wages, once the region break this "threshold", the impact becomes positive, and appears to increase gradually. From cases of different quantiles, the specialized urban agglomeration has significant positive effect on highly-skilled labor wages, while significantly negative effect on the wages of low-skilled labor. In contrast to the strong polarization of the specialized case diverse urban agglomeration has almost same impact on different quintile labor wages. As to regional differences among eastern, central and western regions, the eastern regions labor wage level is mainly due to the diverse urban agglomeration. Labor wages of central and western regions benefited more from specialized urban agglomeration.