Labor Shares, Income Gap And Economic Growth

The12th Five-Year Plan (FYP)clearly put forward the basic policy orientation——"two simultaneous" to keep the synchronization between urban and rural residents’income growth and economic development, to keep the synchronization between the growth of labor compensation and the improvement of labor productivity. According to the macro guidance, theorists are to solve the following three problems:What are the affected factors、reasonable level、variation law of the labor income share; what are the respective effects of the labor income share and Income gap on economic growth; how to balance between efficiency and fairness according to the labor income share policy and how to combine with the regional differences organically. This paper establishes the theoretical and empirical analysis framework to analyze this problem systematically.This paper firstly establishes the unified analysis framework to analyze labor income share’s influence on economic growth theoretically. Labor income share affects economic growth through direct impact mechanism and indirect impact mechanism. From the direct impact mechanism, labor income share affects economic growth through consumption, and investment. The increase of labor income proportion will raise the consumers’ income level, improve residents’ purchasing power, this is clearly beneficial to economic growth. But increasing labor income means to improve labor’s wage level, which will cause the rise of enterprises’ labor costs. From the indirect impact mechanism, labor income share rise is beneficial to the improvement of income gap, further influence the economic growth, the overall effects depend on the balance between the two.Secondly, the paper systematically analyses the decisions and laws of labor income share. On the base of analyzing the evolution status quo of China’s labor income share in depth, we firstly use the provincial panel data in China and empirically analyze the influence factors of labor income share. The level of economic development、open degree、technical progress、human resource、industrial structure and financial development and so on all have Influences on labor income share. And these factors is variable in different period, this proved that the share of labor income is not stylized facts. In order to measure the labor income share’s reasonable interval, this paper is to establish the integration framework to determine the factor income share by the factor contribution on the base of the general characteristics of allocation by element contribution in market economy, and use provincial panel data from1979to2009to calculate the labor’s contribution to economic growth and the corresponding income share. And we have found that the contribution of labor is about32%. This result shows that the decline of China’s current labor income share is the result of the market’s natural adjustment.In order to further measure the share of labor income and its impact on the economic growth, we are using the provincial panel data to analyze the effect empirically. The results show that labor income share’s impact on economic growth is notably negative, and different regions have different effect extents and the eastern region is weaker than center and west regions. The improvement of labor income share is resulted in reduce of investment scale and the effect of inhibition growth to occupy a dominant position, which is related with the investment driven economic growth mode in our country. This also means that the measures to increase labor income share may lead to a slowdown in economic growth.But we make a regression between the personal income distribution which is based on the Gini coefficient and labor share and income levels on the bases of China’s provincial panel data. The results show that from the point of the whole nation, labor share and income gap are in negative correlation, but different area shows different characteristics. In eastern region, labor income share and income gap are significantly negative correlation, but central region is not obvious, while the western region shows significant positive correlation. This relationship has strongly proved that the existing research about that factor income distribution is decision factor for income gap. This means that despite the labor income share drops is an inevitable phenomenon in the process of economic development and marketing, but the influence of the labor income share to income gap is still worth us to reconsider the formulation and Implementation of the income distribution policy.Therefore, combining the basic conclusions of the theoretical analysis and empirical analysis, this paper last put forward feasible suggestions to improve labor income share from income allocation policy、industrial policy、tax support policy and FDI policy four respects.