A Note on City Size and the Sharing of Quasi-Rent between Labor and Capital in China

Zhe Kong (), Xiaohan Zhang () and Weiwei Cui ()
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Zhe Kong: Zhongnan University of Finance and Economics (Nanhu) Wuhan, China
Xiaohan Zhang: Southwestern University of Finance and Economics Chengdu, China
Weiwei Cui: Guizhou University of Finance and Economics Guiyang, China

Asian Economic Papers, 2023, vol. 22, issue 2, 28-35

Abstract: We use an asymmetric Nash bargaining model between worker and firms, under the assumption of firm-specific human capital (FSHC), to argue that city size influences the proportion of the rent received by labor (i.e., the magnitude of labor share of rent). We argue that an increase in city size generates both a positive effect (the “FSHC-autonomy effect”) on the bargaining power of labor as well as a negative effect (the division-of-labor effect) on the bargaining power of labor. Our empirical exploration found that labor share of the rent (in percent) increases with city size, suggesting that the FSHC-autonomy effect is greater than the division of labor effect.

Date: 2023
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