The impact of heterogeneous labor mobility on income inequality: A skill premium perspective

As China's skill premium has continued to rise, understanding the underlying drivers is crucial for narrowing income disparities. This paper develops an income distribution model with heterogeneous labor mobility and explores how it affects income inequality through the skill premium. We test the hypotheses using the China Migrants Dynamic Survey (CMDS) microdata for 2013–2018 merged with city-level data from the China City Statistical Yearbook. The results show that a 1% increase in the high-skilled labor mobility raises the skill premium by 0.13%, while a 1% increase in the low-skilled labor mobility raises it by 0.14%. Mechanism analysis shows that the widening effect of high-skilled labor mobility is driven by imperfect substitutability between high- and low-skilled workers and a capital demand channel, whereas the corresponding effect of low-skilled labor mobility arises because labor-supply effects offset knowledge spillovers associated with high-skilled labor mobility. We derive policy implications in three areas: strengthening skill complementarity and coordination, easing bottlenecks in matching, and optimizing the spatial distribution of skills through urban agglomerations.