INTRA-URBAN WAGE VARIATION IN BEIJING: HAS COMMUTING TIME BEEN WELL CAPITALIZED?

In a well-functioning metropolitan area, firms whose workers have long commutes will have to compensate them with appropriately higher wages to attract enough labor. Whether this hypothesis holds true in Chinese cities where urban spatial structure, wages, and housing markets are undergoing dramatic transformation remains an open question. Taking advantage of a matched data structure from a large-scale survey that incorporates the information of where workers live and work, we empirically examine whether workers receive higher wages commensurate with higher commuting costs, and if so, by how much. The results show that workers ’ commuting cost differentials have been well capitalized into wages in Beijing. On average, the cost of travel (time plus commuting cost) is about 2.1 times the Zheng, et al 233 wage rate (for that amount of time). Therefore, employment decentralization can effectively reduce firms’ labor cost and hence increase their productivity, especially in the current period of fast suburbanization of residential land use. Whether firms pay higher compensation because of agglomeration benefits is still in need of further investigation