Social Welfare Effects of Spatial Configuration of Human Capital:Analysis Based on a Quantitative Spatial General Equilibrium Model
Optimizing the spatial configuration of human capital can significantly enhance productivity and innovation through human capital externalities and skill complementarity,offering a strategic response to the emerging challenge of negative population growth.This paper presents a quantitative spatial general equilibrium model that incorporates cross-spillover effects among heterogeneous labor groups,allowing for theoretical analysis and counterfactual simulations to evaluate the welfare outcomes and fiscal policy implications of optimized human capital distribution across various sce-narios.Key questions addressed in this study are as follows:Is China's current human capital distribution efficient?Spe-cifically,can adjustments in spatial configuration improve social welfare?If so,what policy interventions would support an optimized configuration?Furthermore,what can define an optimal spatial configuration of human capital?This paper develops a quantitative spatial general equilibrium model that incorporates cross-spillover effects among heterogeneous labor groups to examine the spatial configuration of human capital in China within a framework of hetero-geneous agglomeration.Two primary spillover effects are analyzed:as laborers engaged in production,individuals gener-ate positive productivity spillovers;conversely,as consumers,they contribute to negative congestion effects for public ser-vices.Additionally,high-skilled groups may generate positive spillover effects for public services,indicating that indi-vidual location choices impact both regional productivity and public service quality.To account for the distinct character-istics of China's household registration(hukou)system,this paper follows the methodologies of Tombe&Zhu(2019)and Huang et al.(2023),interpreting the hukou system's influence on labor resource allocation through the lens of labor com-pensation.In the model,this influence appears as an"iceberg cost"to labor mobility.Furthermore,the model incorpo-rates a property tax to finance local public services,exploring feasible fiscal and tax policies aimed at optimizing human capital distribution from the perspectives of local government taxation policies and central government transfer payments.Using the"exact hat algebra"method developed by Dekle et al.(2008),this paper conducts counterfactual simula-tions to evaluate the social welfare effects of optimizing human capital distribution and examines fiscal policies to achieve this optimization.It further characterizes the optimal spatial distribution of human capital under equilibrium con-ditions.The results indicate that adjusting the spatial distribution of human capital can yield substantial welfare gains,par-ticularly when considering productivity and public service spillovers across labor types.Specifically,redistributing hu-man capital from high-skilled workers in high-wage cities to low-skilled workers in low-wage cities supports an optimal configuration,advancing the economy toward a Pareto-efficient frontier.When a property tax is introduced,transfers from high-wage to low-wage cities,as well as from high-skilled to low-skilled groups,are diminished.In contrast to China's current human capital distribution,the equilibrium in this new redistribution state reflects a more balanced re-gional configuration of high-skilled human capital.High-skilled workers increasingly migrate to cities with initially smaller populations,while low-skilled workers show a tendency to move to cities with initially larger populations.Compared to existing literature,this paper makes three key contributions.First,on a theoretical level,it enriches the literature on spatial agglomeration models with heterogeneous labor by incorporating the specific influences of China's hukou system and property tax considerations.Second,from a practical perspective,it offers a novel approach to address challenges related to negative population growth by optimizing the spatial configuration of human capital.Third,in terms of parameter estimation,this paper utilizes multidimensional,finely-grained macro and micro data to structurally estimate the elasticity of productivity and the cross-spillover effects of public services for heterogeneous labor in China.
Human CapitalSpillover EffectsWelfare ImprovementQuantitative Spatial Equilibrium