Pain or gain? The effects of transportation infrastructure on labor costs in China 1

Abstract

Using the introduction of high-speed rail (HSR) in Chinese cities as an exogenous shock, we find that improved transportation infrastructure connectivity increases the labor costs of listed companies in peripheral cities and that this effect is more pronounced for non-state-owned (vs. state-owned) enterprises and firms with a higher growth rate. We find two channels for the effect: an increase in labor demand and a decrease in labor supply. In addition, increased labor costs, accompanied by improved profitability, indicate that the HSR introduction promotes firms’ long-term development. Our study highlights the importance of the construction of transportation infrastructure for labor costs and firm development.