Research On Open And The Change Of Labor Share

Economy in China has been developed greatly since the reform and opening up in recent30years and reached a critical period of transformation. For a long time, China is defined as a labor-intensive country of which comparative advantage is cheap labor force. However, along with the development of globalization, manufacturing industry in China has gradually fallen into low level on the global value Chain. Through the per capita income in China has exceeded US$3000, labor income share has declined gradually, which is resulted from the low position of China on the industrial chain. If a broad range of laborers cannot enjoy the fruits of reform and opening up, it will result in weak power of consumption and social inability. Furthermore, along with the development of global economy, international trade and investment will become great pushing forces to the economic growth in China. Therefore, there will be great practical significance to research the relationship between opening up and labor income share.Current literatures mostly focus on opening up and labor income share while rarely on relationship among outsourcing, vertical specialization and labor income share. Even though some western scholars have researched the effects of outsourcing and vertical specialization on labor income share in developed countries, their ideas were mostly from the angle of themselves which cannot be used for reference by developing countries. Developing countries, as outsourcing undertaking ones, are always in passive positions. Hence, there is few literature taking developing countries as research objects. We cannot help but ask what effects of outsourcing and vertical specialization will be on labor income share in developing countries and what is the theoretical mechanism and what conditions will be in China and which mode of outsourcing and vertical specialization will be more beneficial to China.To answer those questions, the article is divided into following sections:The first section introduces the discussion subject from current economic background and expresses the significance of the research in this article. Then explanations are made to the thinking and methods of the research and logic structure and research contents are arranged. Final part of the first section explains the difficult points and innovative points during the research.The second section is the basis for the whole research which is unfolded from three aspects respectively, i.e. measurement of labor income share, labor income share under closed conditions and that under opening-up conditions. The article will make clear influencing factors of labor income share under closed conditions from aspects of capital-output ratio, technological progress, economic transformation, structural factor and degree of globalization, etc. Results will be taken as a basis for researching change of labor income share under opening-up conditions.The third section is about the effect of direct foreign investment on labor income share. Labor income share can be seen as the product of salary level and labor productivity both of which are greatly related to direct foreign investment. Possible effect of technological spillovers may stimulate the increase of labor productivity in China while force local enterprises to raise salary level of laborers with their competitive high salaries. In considering of that, we made statistics to labor productivity and increase range of salary of each industry in past ten years and found out that effect of foreign investment on increase of salary was not as obvious as that of labor productivity. Based on that, we carried empirical test on investment and labor income share and respectively discussed highly-skilled and low-skilled industries by setting up dummy variables. Conclusions we acquired also proved the results of statistics.The forth section is mainly about trade, the other aspect of opening-up. Macroscopically, international trade has effects on labor income share on three aspects, factor income, technological progress and labor transfer. Those effects are differentiated by establishing the general equilibrium model of trade. Factor income effect mainly represents transformation of domestic economy, expressed by urban and rural dualistic economy and reform of state-owned enterprises. Increase of capital-oriented technology is faster than that of labor-oriented technology, which makes labor income share be replaced by capital income share.The fifth section is focused on function mechanism on labor income share through observation combining each economic entity. If only trade and investment are used, relations between each economic entity will seem loose. Therefore, in this section, vertical specialization is used. Analysis on investment from the angle of industrial transfer is carried out at first and then the general equilibrium model concerning two industries in two countries is established. Conclusions indicate that if labor-intensive industry is to be transferred, the labor income share in that country will increase; if capital-intensive industry is to be transferred, the labor income share will decrease. To acquire more detailed conclusions, we set up a mathematical model dedicated to a certain department to observe producers and consumers in that industry. Based on the assumption that producers pursue for profit maximization and consumers pursue for utility maximization, the general equilibrium model is established to make the two balanced. Then we expand the general equilibrium model by taking production chain concept into consideration to research the relationship between the position of enterprise in production chain and the earnings. Certainly, ratio of labor income and capital income need to be considered as well and relationship between the position of producer in production chain and the labor income share is observed through simulation. Then, it can be found out that the higher the degree of capital intensity is, the lower the labor income share in that country will be along with the transfer of enterprise of that country.Based on the model of industrial chain, it can be deduced that vertical specialization affects the labor income share through its effects on employment structure, oriented technological progress and production efficiency. In the empirical test afterwards, measurement models are set up as per the deduction. Because there is no specific index to measure the degree of vertical specialization, we collect data from customs to study the effects of vertical specialization on labor income share. In this section, we calculate the salary of skilled labor mentioned in the fourth section to get the ratio of highly-skilled labor and low-skilled labor. Then the regression results indicate that salary of different degrees of skill has negative effects on labor income share, which is consistent to conclusions from dummy variables. After the financial crisis, foreign countries have changed their investments in China. Therefore, we systematically sort out the data of foreign investments to China and conclude the quality and quantity of foreign investments before and after the financial crisis. From the statistics we can find out that quality of foreign investments to China has declined because of financial crisis and each main country has changed their investment policies to China. Then we survey the vertical specialization in trade again by adding statistical data into consideration and conclusions indicate that financial crisis is helpful to the increase of production efficiency in China and state-owned enterprises have played a great role in maintaining labor income share.The seventh section gives us the conclusions.