City Size and Wage Disparity in Segmented Labour Market in China

The relation between city size and wage inequality is well established for Western countries. This paper finds that city size-wage premium exists across Chinese cities to a lower extent than the Western world. Further, using a simplified model on the Chinese Household Income Project survey data, we find that the city size-wage premium varies with difference in skills among urban citizens. The variation amounts to 50% more for the high-skill workers compared with their low-skill counterparts. Moreover, owing to the presence of segmented labour market, the patterns of city size-wage premium and city size-wage inequality premium are notably different for the migrants, who receive a much lesser wage than the citizens and do not experience wage variation owing to their skill heterogeneity.