China’s large cities adopt preferential settlement policies for highly skilled labour and stricter settlement requirements for low-skilled labour. This paper studies the impact of low-skilled labour on urban economic development by constructing a general equilibrium model of two cities, combining theoretical deduction, numerical simulation and empirical methods. The model reveals that it is possible to attract more low-skilled labour to settle in large cities by reducing their settlement requirements, thereby lowering the cost of urban living, increasing the attractiveness to highly skilled labour, maximising the agglomeration effect of highly skilled sectors, increasing real wage incomes and narrowing the income gap across society.