Abstract
New economic geography models predict that costly transport and the spatial distribution of demand affect the profits firms can earn in different locations, leading to higher wages for workers employed in cities with better geographic access to markets. In light of the ongoing economic integration and market reforms that occurred in China after 1995, we use four waves of Chinese Household Income Project data to measure the extent to which the influence of market access on wages changed and influenced wage dispersion over the next 12 years. In particular, we test whether the increase in the estimated elasticity of the wage with respect to market access observed by Kamal, Lovely, and Ouyang (2012) between 1995 and 2002 continues to characterize the more recent period. We also test for differences in the effect of market access on the wages of skilled and unskilled workers and of those working in state-owned and private enterprises. We examine the relationship between market access and wages when adjusted for living costs, in the context of internal labor migration, considering both within province and across province differences. Finally, we measure the extent to which relative changes in market access is an economically important factor explaining cross-city differences in average wage growth between 1995 and 2008.
