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| The Cost Reduction Effect of Subway Opening: Evidence from Enterprise Employment |
| DAI Yiyi, LIANG Shihe, WANG Jiantao, LIANG Weijuan
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| School of Management, Xiamen University |
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Abstract As an essential transportation infrastructure designed to enhance urban efficiency, subways worldwide have long struggled with persistent operating losses. This is also the case in China, where subway construction and operation rely heavily on government subsidies and debt financing. However, despite growing fiscal pressure on local governments in recent years, many cities prioritize subway expansion in their urban development plans, resulting in ongoing debates about the costs and benefits of subway projects. Against this backdrop, it is essential to analyze the economic benefits of subway construction in Chinese cities, which can help understand the government's policy goals better and provide practical implications for local governments to improve their infrastructure plans. Moreover, existing studies have not fully explored the economic externalities of subway systems, especially from the perspective of the cost-reduction effect. This study addresses this gap by examining how subway opening influences firms' labor costs.
We argue that improved commuting efficiency from subway opening can reduce labor costs for nearby firms in two ways: by enhancing firms' wage bargaining power and by lowering employees' expectations for monetary compensation. For firms, improved commuting conditions and greater accessibility around subway stations help attract a larger pool of workers and expand the potential labor supply. Drawing on the labor market supply-demand framework and wage-bargaining theory, a larger applicant pool intensifies job seekers' competition, enhancing firms' bargaining position in wage negotiations and ultimately reducing labor costs. For employees, improved commuting efficiency provides non-monetary benefits such as higher job satisfaction and improved mental well-being, which may lower employees' expectations for monetary compensation. In addition, the subway's capacity to support efficient and long-distance commuting enables employees to reside in areas with lower living costs, thus increasing their willingness to accept lower wages.
This study uses manually collected data on the opening dates and geographic coordinates of subway stations across Chinese cities to construct a dataset tracking subway opening within a 500-meter radius of the office locations of A-share listed firms from 2003 to 2019. The baseline results show that opening a nearby subway station leads to an average 5.63% reduction in firms' labor costs, equivalent to an annual decrease of 6,163.10 yuan in compensation per employee, highlighting the significant economic benefits of subway expansion. Mechanism analysis suggests two primary channels. First, subway access enables firms to tap into a larger labor pool and attract more job applicants, intensifying competition among workers and thereby strengthening firms' bargaining power. Second, compared to other commuting options, subways offer employees non-monetary well-being, such as mental health and job satisfaction, and also help lower their basic living expenses,further reducing their reservation wages. In addition, the cost-reduction effect is more pronounced for subways with high speeds and multiple transfer routes. However, the effect is relatively limited in areas with favorable commuting conditions, low living costs, or low population density. Finally, the study finds that the labor cost savings from subway access can facilitate further investment by firms.
The marginal contributions of this study are as follows. First, this study provides new evidence on the economic externalities of subway systems from the perspective of firms' labor costs. This not only complements the existing literature on the economic outcomes of subway construction but also deepens public and policy-level understanding of its broader economic value. Second, the study explores the link between subway opening and firms' labor costs by focusing on commuting efficiency, thereby extending the academic literature on the determinants of labor costs. Third, the study finds that subway opening helps reduce firms' operating costs, offering valuable policy implications for leveraging infrastructure investment to promote high-quality enterprise growth, especially amid growing concerns over China's economic deceleration.
This study proposes several policy implications. First, stakeholders should adopt a more balanced view of the economic value of subway systems. For example, the media are encouraged to take a more evidence-based approach and highlight the social and economic benefits of subways to improve public understanding of transport infrastructure. Second, firms should make full use of the opportunities created by improved public transportation. They can seek government support to improve local transport and prioritize office locations with better commuting conditions. Third, local governments should approach subway planning more carefully by weighing fiscal costs against potential economic benefits. Effective planning should consider factors such as passenger demand and existing transport infrastructure to avoid inefficient investments and fiscal risks.
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Received: 10 July 2024
Published: 02 May 2025
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