High-Speed Rails, Labor Mobility and Within-Firm Pay Gap

Abstract

ABSTRACT The intrafirm pay gap plays a significant role in firm outcomes and prior research focuses on examining its determinants based on firm characteristics and institutional factors, with limited understanding of how labor mobility, driven by improvements in transportation, affects the pay gap. This study utilizes the opening of high-speed rails (HSRs) as an exogenous shock of the improvement of transportation infrastructure and finds that HSRs substantially increase the within-firm pay gap, especially for firms located in small cities. Mechanism tests reveal that the widening pay gap can be attributed to the decreased employee’s wages, driven by the increased supply of low skilled labors. The effect is more pronounced in labor-intensive firms, and those with weaker employee bargaining power. Overall, we provide implications for regulators and management who are concerned about pay inequity.