City Size, Industrial Composition Change and Local Labor Market Inequality Change

Abstract

This paper studies a spatial pattern and a possible channel of local labor market inequality change. That is, large cities have the greater losses in the declining industries and greater gains in the growing industries. When the declining and growing industries are low-skilled and high-skilled intensive respectively, and the growing industries are skill intensive, the losses and gains of industries lead to a greater increase in the local labor market inequality of those first larger cities. The empirical results show that, one standard deviation change in initial city size accounts for 71.3% to 80.5% of one standard deviation change in industrial composition where the industrial composition change refers the losses in manufacturings (NAICS 31-33, low-skilled worker intensive) and gains in professional services (NAICS 52, 54, and 62, high-skilled worker intensive) here. One standard deviation change in the industrial composition change accounts for 79.5% to 89.8% of one standard deviation change in the local labor market inequality. And overall, the one standard deviation change in initial city size accounts for 62.1% to 65.1% of one standard deviation change in the local labor market via the industrial composition change channel. These empirical results verify the spatial pattern and the channel. And the paper compliments many related discussions in various ways.