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| Housing, Amenities, and Heterogeneous Labor Mobility: Micro Mechanisms and Welfare Effects |
| GUO Jin, XU Yingzhi, BAI Junhong
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School of Business, Nanjing Normal University;
School of Economics and Management, Southeast University |
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Abstract Since the Reform and Opening-up, China has experienced rapid and extensive urbanization. Large scale labor agglomeration in cities has brought about the renewal of urban housing and amenities, which has not only reshaped cities' function and form but also led to the emergence of new tensions within cities, especially between the demand for high-skilled labor and the presence of low-skilled rural migrants.
Although rising housing costs have weakened wage premiums and reduced the willingness of low-skilled labor to stay in big cities, this does not fully explain heterogeneous labor mobility. It is therefore necessary to investigate urban amenities. The welfare associated with urban life is key to determining labor migration, but welfare does not always increase with wage growth. In particular, rising housing costs and improved amenities also have significant impact. Therefore, it is necessary to evaluate heterogeneous labor's living conditions from the perspective of welfare. However, it is not easy to complete this research task because both housing costs and amenities are endogenous to urban employment, and heterogeneous labor has differentiated preferences for housing and amenities.
In this paper, we first establish a spatial equilibrium model with endogenous housing and amenities and calibrate the model's parameters by constructing the Bartik instruments and using population survey data. Then, we set up three types of counterfactual scenarios for individual changes and joint changes in housing costs and amenities. By applying the counterfactual tests, we provide dynamic descriptions of the flow and allocation of high-skilled labor and low-skilled labor among cities, and we evaluate the resulting welfare effects according to the welfare level and welfare gap. Our study thus shows how to optimize the spatial allocation of heterogeneous labor and improve the quality of human-city integration during the urbanization process in China.
The empirical results yield several conclusions. In terms of micro mechanisms, the agglomeration of heterogeneous labor in cities drives a significant increase in housing costs, but the improvement of urban amenities is mainly due to the expansion of high-skilled labor, and the contribution of low-skilled labor growth is not significant. At the same time, rising housing costs and improved amenities have two completely opposite effects on labor mobility, i.e., dispersion and agglomeration. Rising housing costs induce both high-skilled and low-skilled labor to escape from big cities, and the scale distribution of cities is characterized by flattening. However, improved amenities induce a trend of spatial agglomeration in heterogeneous labor, resulting in the polarization of urban scale towards large cities.
In terms of welfare effects, rising housing costs reduce the potential for welfare improvement due to a wage premium but alleviate a widening welfare gap, as the housing costs of high-skilled labor are higher than those of low-skilled labor. Nonetheless, rising housing costs cannot be regarded as Pareto-optimized for improving welfare inequality. On the contrary, higher amenities promote improved welfare in heterogeneous labor but exacerbate welfare inequality because of low-skilled labor's lower preference for amenities. This conclusion does not imply a need to limit the supply of amenities, but a need to focus on improving low-skilled labor's preference for amenities. In addition, city size has an amplifying effect on these welfare effects.
Our study makes three contributions to the literature. First, because we note that local governments rely on fiscal revenue to provide amenities, we treat the supply of amenities as a cost dimension. Combined with the non-exclusive nature of amenities consumption, this extension provides a more comprehensive perspective for understanding the social phenomenon of heterogeneous labor, especially low-skilled labor, flocking to larger cities in China with higher housing costs. Second, we examine heterogeneous labor's differences in preferences for housing and amenities, and we assess their welfare levels and welfare gaps. As an important supplement to the wage-focused perspective, this expansion provides an objective basis for analyzing the living conditions of heterogeneous labor. Third, improving the quality of human-city integration is essential for promoting people-oriented urbanization. In this regard, China's 14th Five-Year Plan emphasized improving the housing market system and housing security system, and it encouraged local governments to provide more public services and amenities. This paper enriches the research on human-city integration from the perspective of housing and amenities and provides policy implications for improving the spatial allocation and welfare of heterogeneous labor.
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Received: 03 November 2020
Published: 05 August 2022
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