Do urban educational resources affect corporate labor costs?

Although researchers have extensively documented the effect of urban educational resources on families and individuals, the impact of these resources on corporate decision-making remains underexplored. Hence, this study uses the imbalance in urban educational resources across China to examine the effect of these resources on corporate labor costs. We gather data from publicly listed companies in China from 2003 to 2018 to examine this relationship. We find that urban educational resources have a causal and negative influence on labor costs. We further show that urban educational resources affect employee remuneration via the employee turnover channel. The impact is more prominent in firms with high employee bargaining power, cities with low barriers to settlement, and privately owned companies. Overall, this study combines intergenerational interactions with compensation incentives to provide new evidence on how employees can obtain compensation for their families’ education costs.