Bridging or widening: How digital infrastructure shapes wage inequality through the lens of urban–rural interdependence

The literature generally indicates that expanding infrastructure helps reduce wage inequality; however, this perspective does not explain the Chinese context, where rapid infrastructure growth has been accompanied by persistently high wage inequality. To explain this puzzle, this study constructs a two-sector general equilibrium model that incorporates rural–urban interdependence to theoretically analyze the impact of digital infrastructure on wage inequality and to empirically test its implications using two microlevel datasets. Results indicate that more digital infrastructure boosts wages for both skilled and unskilled labor. However, skilled labor benefits more and experiences greater marginal wage gains, thereby exacerbating wage inequality. Mechanism analysis shows that increased provision of digital infrastructure reduces the prices of nonagricultural inputs, facilitates agricultural modernization, and promotes rural–urban migration. The research reveals the complex effects of digital infrastructure on wage disparities and highlights the need for policymakers to address the potential of digital infrastructure to exacerbate inequality in developing countries.