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

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.

KEYWORDS:

• Within-firm pay gap
• high-speed rails
• labor mobility
• China

JEL:

• M41
• J31
• O18

Acknowledgments

We appreciate the constructive suggestions from Yezhou Sha. We also thank the seminar participants at the 16th Bulletin of Monetary Economics and Banking International Conference and Call for Papers.

Disclosure Statement

We declare that we have no financial and personal relationship with other people or organizations that can inappropriately influence our work, there is no professional or other personal interest of any nature of kind in any product, service and/or company that could be construed as influencing the position presented in, or the review of, the manuscript entitled.

Notes

1. Source from: https://www.ilo.org/global/lang–en/index.htm.

2. According to an AFL-CIO’s Executive Paywatch news, the average CEO pay at an S&P 500 Index company surged to an of 361 times more than American average rank-and-file workers in 2017.

3. We have conducted extensive research and reading on the literature concerning high-speed rails and pay gap. Existing discussions on the impact of high-speed rails on income disparities mainly focus on its effects on the urban-rural income disparity (Yu and Pan 2019), regional income inequalities (Jiang and Kim 2016), and the wage gap between rural-urban migrants (Kong, Liu, and Yang 2021). However, we have found that there is currently no research exploring the effect of high-speed rails on within firm pay gap (pay inequity between the managers and the rank-and-file employees).

4. Since 2004, the Ministry of Railways has strengthened its cooperation with local governments, however, by the end of 2008, local government and social investment only accounted for about 20% of the total investment scale of the contracted projects. Since the Ministry of Railways has promulgated route planning policies prior to local government financing, the layout of high-speed rail lines is less influenced by local governments, i.e., the effect of HSRs connection on the within firm pay gap is more exogenous. In addition, this study finds that this effect of the opening of HSRs on the pay gap is mainly concentrated among firms in small cities, and the effect in large cities is weaker. Given that the government in small cities has even less influence on the layout of HSRs, the opening of HSRs is a more exogenous event when studying the impact of the opening of HSRs on within firm pay gap.

5. DID methodology enables a comparison between treatment and control groups over time, effectively isolating the causal impact of the treatment (i.e., the opening of high-speed rails) on the outcome (i.e., within-firm pay gap). By accounting for time-invariant factors and using both pre- and post-treatment periods, the DID methodology can effectively mitigates issues related to endogeneity and selection bias.

6. The reason for removing the financial industry sample is because the accounting standards applicable to the financial sector differ from other industries, leading to significant differences in information disclosure. Consequently, there is difference in variable construction. The deletion of samples with a debt-to-asset ratio greater than 1 is primarily due to the fact that companies with negative net assets may exhibit differences in financial behavior and wage decisions compared to normally operating companies, potentially influencing the results obtained. Based on this, we follow existing literature (Liu and Shu 2022) and exclude samples from the financial industry and those with an debt-to-asset ratio greater than 1.

7. As most of the HSRs opening date of our sample is in the second half of the year, we define the HSRs opening year as the next year of the HSRs initial opening date.

Additional information

Funding

We acknowledge the financial support of the National Social Science Foundation of China [grant no. 21ZDA010; 22VRC145] and the National Natural Science Foundation of China(grant no. 71991473; 71772178).