A Study On The Evolution Of China's Labor Share And The Reason Of Evolution

The distribution of national income between the elements is known as the functional distribution of national income, which is not only the true portrayal of the welfare state of capital and labor elements owners, but also an important factor of determining whether the economy can be healthily and sustainably developed. In recent years, a substantial decline in the proportion of labor share, continous rise in the proportion of capital share, leading to macroeconomic imbalance of consumption and investment.In the post-crisis era, the decrease of labor's share is more prominent for the entire economy. After reform and opening up, China's economy experienced a sustained period of rapid development, investment and exports has been the main force of driving economic growth. After 2008 financial crisis, exports were seriously affected, the external demand significantly declines, the expansion of domestic demand and consumption the Government has always stressed are in need of the support of labor income. But in recent years, labor's share continues to decline, it is not conducive to the sustained and healthy of the economic development. Therefore, the focus on the change of labor's share of national income in the initial distribution is of a very real sense for the study of the current situation and future trends of China's economy.This paper firstly measures the labor's share of GDP since the reform and opening up, and find that the labor's share increases during 1978-1984, keep stable during 1984-2005, decreases steadily during 1995-2007. by comparing with other countries we conclude that our labor's share is lower. Then the paper analyze the reason from income distribution policy, industrial upgrading, collective wage negotiation system, and find that the change of income distribution policy ,transformation from agriculture sector to non-agriculture sector, imperfect collective wage negotiation system is the main reason why the labor's share decreases. because the deceasing labor's share of national income result in low consuming rate , the increasing gap between the rich and the poor, and handicap the industrial upgrading and transforming economy growth mode. In the end, the paper suggests increasing labor's share by increasing the bargaining power of labor towards capital, rapidly developing the service industry and reforming tax policy to change the decreasing trend of the labor's share.