Understanding Regional Labor Market Dynamics in China Through the Wage Curve in Urban Areas

ABSTRACT This paper examines the relationship between wages and unemployment rates in Chinese regional labour markets, focusing on the regional wage curve. Using data from 298 cities from 1999 to 2017, we find a significantly negative relationship between wages and local unemployment rates, indicating higher wages in tight labour markets and lower wages in loose ones. Disaggregated analysis shows that wages are generally more responsive to 1ocal rather than aggregate unemployment. The wage curve effect is strongest in small and medium‐sized cities in industrialised regions, suggesting greater sensitivity to local shocks in non‐tradable sectors. In contrast, large cities in the industrialising Western region exhibit stronger alignment with aggregate unemployment, reflecting common shocks in tradable sectors, while small and medium cities in the Coastal region respond mainly to local conditions. Cities in the lagging Interior region display weak alignment with both provincial and local labour markets, exacerbating regional disparities. To address these inequalities, we propose a hierarchical coordination mechanism to enhance wage flexibility, enabling regions to adjust more effectively to shocks and helping to reduce disparities between developed and less‐developed areas.