Skill Complementarities and Urban Labor Sorting: Evidence from Chinese Cities

Abstract

The spatial sorting of skilled labor is the key to the economic growth of cities, while skill complementarity serves as an important underlying mechanism for its formation. This study examines how skill complementarities in production influence the equilibrium allocation of labor across urban areas. We differentiate between extreme-skill complementarity, which leads to thicker-tailed skill distributions in large cities, and top-skill complementarity, which generates first-order stochastic dominance. Analyzing wage and housing price data from the 2013 CHIP survey and the CEIC database, we find robust evidence that large cities in China attract a disproportionate share of both high-skilled and low-skilled workers, while average skill levels remain unchanged across city sizes. These findings highlight the importance of providing valuable insights for developing countries to address urban development inequalities and enhance labor market efficiency.