Urban rail transit and inner-firm labor–capital rent sharing: Evidence from China

Abstract

This paper investigates the impact of urban rail transit improvements on rent sharing between labor and capital within firms. By integrating firm-specific human capital accumulation into a Nash bargaining model, we theoretically illustrate that such improvements enhance outside options for both labor and capital, primarily benefiting labor in rent distribution. The empirical analysis, which employs event study methods and panel data from Chinese firms, supports this hypothesis, revealing that urban rail enhancements significantly increase labor’s share of firm rents. However, this effect diminishes as bargaining power of labor increases. This study has important policy implications for administrators in developing countries, who face challenges related to factor income distribution.