Study On The Influencing Factors Of China’s Labor Income Share

Since the reform and opening up, China’s economy has made a prolong achievment.With the GDP grows rapidly, The disposable income of residents has experienced aslow increase. Moreover, the income gap is becoming bigger. The economist believesthat, along with broadened income gap and increasing investment, insufficientcomsuption is closely related to the first income distrbution. The labour share of firstincome distrbution is at the low level of44.94%, far below the figures in mostdeveloping countries and the developed ones, which ranges from55%—65%. And themain purpose of this essay is to discuss the main factors resulting in the low level andtheir mechanism.Firstly, this essay studies the industrial structure effect and the within-sector effectof the change of labor share. The result shows that the dominating power is changingfrom the structure effect to the within-sector effect. During1993-2003, the structureeffect can explain over90%of the labor share change, while80%change was caused bythe within-sector effect during2004-2011. building a model basic on the CD productionfunction, this essay believes the main factors of labor share’s change including the truelabor wage, capital deepening, biased technical progress and the distortion of the factormarket.The empirical study based on the inter-provincial panel data in china from2005to2009. and the result shows capital deepening has a positive relationship with the laborshare, this might be owing to the complementation between the capital and the labor.capital accumulation is more used to amplify the production scale, so more laborparticipate in the economy, which gives a push to the social average wage. Privatizationis also a positive factor. Compared with the state-owned economy, none-state-ownedeconomy is faced with different factor prices, which makes it more likely for them tostay in the labor-intensive sectors and choose labor-augmenting technique. The capitalrace among the local governments sacrifices the bargaining power of labor, therefore itis negative. And most importantly, the distortion of the factor market results in that thelabor can not get the payment matched with its contribution, so it is also negative.In accordance with above results, this essay suggests to deepen the reform ofstate-owned economy, support the private economy and improve the assessmentmechanism of the local governments. Establishing and improving related legislation and rules to give worker a better protection, and clearing up the obstacles of labor flow arealso necessary measures, for they help reduce the distortion. Meanwhile, increase thecapital income of the residents, give workers more opportunities to share the payback ofcapital appreciation, thus the income gap can be narrowed and social welfare increased.