How Does House Price Affect Wage Rate

Since the reform and opening up,China’s economy has continued to develop,and today it has become the world’s second largest economy and the world’s factory.At present,China’s economy has entered a new normal stage.With the advancement of industrialization,the importance of factor resources to China’s economic development has become increasingly prominent.On the one hand,China’s manufacturing industry is facing the dual pressures of the return of high-end manufacturing in developed countries and the competition with lowand middle-income countries for the transfer of low-and mid-end manufacturing.On the other hand,with the disappearance of the demographic dividend and the overall rise in factor costs,the original comparative advantage is gradually disappearing.Wage rate,as the cost of a company’s labor,is important for the competitiveness of Chinese enterprises.Since the reform of China’s land supply policy in 2003,real estate prices have started to rise.At the same time,wage rate has also grown rapidly.If the rise in the wage rate is caused by the rise in house prices,it will increase the cost of producing units of goods,prompt enterprises to raise the price of goods or replace labor with capital,resulting in excessive capital deepening and inefficient allocation of resources,which will ultimately affect the comparative advantage of our products and industrial upgrading process.This paper first explains the research background,significance,research content,and innovation,and reviews relevant research literature.Second,it establishes a general equilibrium model covering the labor market,housing market,rental service market and general commodity market,and theoretically analyzes whether the changes in house prices affect the level of wage rates.And then,it builds the continuous treatment effect model,using data from the China Labor Force Dynamic Survey empirically test whether the rise in wages is caused by rising house prices,and estimate the counterfactual distribution of wage rates and the wage rate elasticity of house price at different house price levels to quantify the causal effect of house prices on wages.Finally,based on the theoretical analysis and empirical analysis results of the effects of house price changes on wage rates,we propose corresponding policy recommendations.The marginal contributions of this paper are mainly reflected in the following: first,the theoretical foundation of housing prices affecting individual wages is constructed by establishing a general equilibrium model including the labor market,housing market,rental service market,and general commodity market,and the theoretical analysis results are empirically tested;Second,we using continuous treatment effect models and distributed regression methods under the framework of counterfactual analysis,using "Chinese Labor Force Dynamic Survey Data" to study whether house prices affect individual wages at a micro level,and obtain the counterfactual mean of wage rates and the wage rate elasticity of house price,quantifying the causal effect of house price changes on wage rates.We find that:(1)From the general equilibrium model,we find that wage rates are positively related to house prices.(2)Empirical analysis found that house prices have a positive causal effect on wage rates.When the house price is higher,the house price has a greater impact on the mean of the wage rate distribution.Under different house price levels,the house prices of wage rate vary between 0.203 and 0.305.With the increase in housing prices,the wage rate elasticity of house price has shown a downward trend as a whole and the decline has gradually decreased.(3)The regression results are robust.The results of grouping by gender and replacing community housing prices with urban housing prices are basically consistent with the main regression results,but there is a nuanced difference in the impact of urban housing prices and community housing prices on wage rates,which is reflected in the fact that community housing prices are more likely to affect wage rates than urban housing prices.(4)The rise in housing prices has different explanatory powers for wage growth in different cities.Among them,wage increases in Beijing,Shanghai and Shenzhen are largely caused by rising house prices.Therefore,stabilizing housing prices will help stabilize the wage rates.At the same time,if housing prices can be lowered appropriately,the welfare of workers who are mainly paid for wages will rise.This will help improve the quality of working class and promote the expansion of the middle class,which will help boost domestic demand.