The Economies And Costs Of Agglomeration: Wages And Commuting Time In Chinese Cities

With the accelerated process of urbanization, the size of Chinese urban population is larger and larger. Increased size of cities can bring about the improvement of produc tivity and increase the income of workers, which is the agglomeration economies effect of cities. At the same time, increased size of cities also lead to a higher housing cost and a longer commuting time, which is the agglomeration costs effect of cities. However, due to the rapid increase in population in big cities, policy makers think it is an important cause of "big city disease". Therefore, they try to adopt urban policy to restrict the further growth of large cities, such as more strict household registration system and limitation of land supply and nature of land use, etc. The rationality behind these policies is the agglomeration cost, but it need a more clear understanding of the agglomeration costs. More specifically, a more accurate estimation of the relative size of agglomeration costs and agglomeration economies. Therefore, this paper analyzes how urban agglomeration economies and agglomeration costs affect consumer utility. More important, we estimated the magnitude of agglomeration economies and agglomeration costs, and the relevant policy implications are put forward on the basis of the conclusion. Specifically, the main conclusions are as follows:First of all, through establishing a spatial equilibrium model containing agglomeration economies and agglomeration costs, the article can analyze the effect of urban agglomeration on household utility under a unified framework. In particular, this paper finds that urban agglomeration economies and agglomeration costs will influence consumption and leisure by a variety of channels.Second, the urban agglomeration can bring about the improvement of urban productivity. Through the regression analysis of wage to city size, we know that the city’s productivity (wages) will increase by about 10% on average when the city size is doubled. In addition, the heterogeneity analysis shows that there is a significant difference between the agglomeration economies effect of large cities and small cities, which shows that the economic effect of urban agglomeration is increasing rapidly with the increase of the city size.Third, urban agglomeration also brings higher housing cost and a longer commuting time. The regression analysis of commuting time to city size shows that urban residents’commuting time increases by an average of about 7% when city size is doubled. However, heterogeneity analysis finds that there is no significant difference between the agglomeration cost effect of large cities and small cities, which shows that the cost of urban agglomeration does not increase much faster with the increase of urban size.Finally, both wages and commuting time will affect the consumption of residents, and the elasticity estimated by this paper is 0.56 and -0.45. Therefore, in the consumption level, agglomeration economies elasticity of Chinese city size is estimated as 0.067 and agglomeration costs elasticity is 0.032. In other words, in the consumption level, agglomeration economies is larger than agglomeration costs, which means that the household utility can be improved by the increase of city size. At the same time, city size has no significant impact on working hours, but city size significantly increases the urban commuting time, which means that the increase in urban population will reduce the residents’leisure time and thus reduce the utility.