Abstract: By expanding the wage equation of new economic geography through introducing the index of service industry agglomeration into it, and using panel data of 271 prefecture-level cities in China, this paper studies the effect of the diversification and specialization agglomeration of services on the wage disparity of manufacturing industry through the use of spatial econometric models. The empirical results indicate that the wage level of manufacturing industry in cities of China shows a significant spatial correlation, which results in an increasingly significant polarization effect in spatial distribution of the wage level. In addition, it is the diversification agglomeration of service industry rather than specialization agglomeration of it can promote the wage level of manufacturing. According to the regression results of regional differentiation, the positive correlation can be seen in the eastern regions of China, while no obvious effect can be seen in the middle regions. But in the western regions, there is a negative correlativity between both. The impact of specialization agglomeration of service industry on the wage level of manufacturing is always insignificant in all regions. The conclusions of this paper can be used for reference to reduce wage inequality of manufacturing industry and promote coordinated development among regions.

Key words: service industry agglomeration, manufacturing wage, diversification, specialization