A Study On The Influence Of Externality On Regional Wage Differential

Because Neoclassical economics ignores the heterogeneity over space, the theories of Neoclassical economics cannot explain economies of agglomeration and also cannot explain the wage levels in the areas of economies agglomeration are significantly higher than other regions. New Economic geography has taken a series of different assumptions, including but not limited to the monopolistic competition, increasing returns to scale, transportation costs, etc., then Economic geography gives a good explanation about economies of agglomeration. This paper is based on the theories of New Economic geography and spatial agglomeration, discusses the relationship between industrial agglomeration and technological externalities and the relationship between industrial agglomeration and pecuniary externalities in theory. And this paper uses the data of 240 cities from 2003 to 2012 from the CHINA CITY STATISTICAL YEARBOOK to show the trends of regional wage differentials, the regional market potential, the regional employment density of the secondary industry and the tertiary industry. In the fifth chapter of this paper uses econometric model to show a perfect positive correlation between the regional market potential and the regional wage, a significant negative correlation between the regional employment density of the secondary industry and the tertiary industry. The regional market potential and regional wage levels are significant positive correlation, which is consistent with most previous studies. The regional wage and the regional employment density of the secondary industry and the tertiary industry are significant correlated, which is different with the most previous studies, such as Rosenthal and Strange(2004) showed that industrial agglomeration can promote the production efficiency, resulting in a positive impact on the wage. This may be related to our country is still in the stage of industrial restructuring, the enterprises do not need too many skilled worker. And the demographic dividend has not disappeared, a large number of workers gather in the same areas, which lead to wages fall. Market potential and regional wage levels are significant correlated, which is consistent with most previous studies.Finally, based on the theoretical analysis and empirical results of this paper, the sixth chapter gives corresponding policy recommendations to optimize the economies agglomeration and narrow the regional wage gap.