Why Do Big Cities Pay More?

The income inequality is not only an academic concern,is also the further development of socialism with Chinese characteristics must solve the pain points.With the development of social economic level,our material living standard is improving,but the income gap in different areas,different groups and different cities is still evident and even widening,among which the more prominent is the wage gap caused by urban size.In recent years,the large population and the rapid growth of the total employment in Chinese big cities has attracted scholars' attention,they have used different ways to estimate and found that there is obvious gap between different urban sizes.Based on this background,and relying on the data from Chinese Household Income Project Survey(CHIP)in 2002 and 2007,I document a positive relation between the size of urban area and the wage,even after controlling cost of living.Moreover,this paper has also studied the mechanism of wage premium in big cities in China.By reviewing the literature,the foreign studies of city scale premium problem emphasize on the research of the mechanism behind the premium,and make a comprehensive analysis of premium mechanism,although different studies focus differently,but the choice effect,learning effect and aggregation effect tend to be the most popular ones.However,the domestic research has paid little attention to this problem,mostly focused on the income gap between urban and rural areas or areas of macroeconomic research.And most scholars just discuss on this topic from a single factor of the mechanisms behind the wage premium,there is few comprehensive analysis of multiple effect mechanism and decomposition of the study.This article is to include the relevant mechanism of big cities wage premium in a model framework,with a unified view of compensation effect,the endowment effect,matching effect,learning effect,self-select effect and scale effect,to reveal the deep reasons behind the appearance of big cities average wages higher.