A Study On The Factors That Influence The Labor Share In Chinese Dual Economy

There’s few study analyzes how some particular characteristics in a dual economy will affect the labor share despite plenty of literatures have emerged and showed considerable insights. To fill in this gap, this paper builds a dual model with neoclassical economic method, which supplies a framework to analyze the effect of urbanization, labor mobility, industrial structure evolution and urban-rural income inequality on the labor share. It can be deduced from the model that these four factors all have significant effects on the labor share and this conclusion is supported by empirical analysis. The econometric analysis based on the database of 1993-2014 shows that in a dual economy like China industrial structure changes impact the labor share most, followed by urbanization, urban-rural income gap, and labor mobility has the minimal impact.It’s consistent with most of the current studies that in the process of transformation of the dual economy to an integrated one, the evolution of the industrial structure will decline the labor share. A key reason is the difference of labor share among different industries, agriculture has the highest labor share. The evolution of the industrial structure is a process of the decreasing share of the primary industry along with the reducing of the labor force in agriculture, while two and three industrial develop rapidly. A negative correlation between the urban-rural income gap and labor share is found. It is believed that capital-intensive technology advances faster in city than rural areas, which led to the city’s capital-output elasticity increases faster than rural areas. This makes it possible that labor share in city decline when the urban-rural income gap grows.Different from current findings, this paper displays that labor mobility does not necessarily bring about the labor share decline, there’s a considerable possibility to increase. The final result depends on the amount of the labor mobile to city and the capital intensity of their jobs categories. The model and empirical work in this paper both illustrate that the relationship between labor mobility and labor share is positive during 1993-2014. Another finding that is different with most of the current research is that the urbanization has a positive correlation with the labor share. The reason is that in a dual economic, urban expansion does not ensure the living and working patterns of the new entering people change to the original city residents’, especially in the employment aspect. If this change don’t happen, there can only be a demographic urbanization not an economic one. This phenomenon is confirmed in China.