Research On The Macroeconomic Effects Of The Production Factor Price Distortion In China

The reform and opening up has opened the prelude to China’s market-oriented reform.After 40 years of continuous advancement,China’s commodity market has formed a relatively complete market-oriented price mechanism.However,the market-oriented reform of the production factor price mechanism is relatively lagging behind,the transparency of pricing rules is not enough,and government improper intervention is still widespread.The production factor price distortion hinders the effective allocation of production factors,which in turn affects macroeconomic operations.From the perspective of market supply,the existence of the production factor price distortion leads to the inability of production factors to flow freely.Enterprises with low productivity may obtain too much capital and labor,while enterprises with higher productivity cannot obtain sufficient capital and labor.Since the production factors cannot be configured according to the production efficiency of the enterprise,the enterprise cannot approach its potential production capacity level,and thus has an impact on the output capacity,capital accumulation,and labor demand of the enterprise.From the perspective of market demand,the production factor price distortion will make it impossible for the household as the supplier of production factors to receive sufficient compensation,which will reduce consumption expenditure,investment expenditure and labor supply.In addition,the market supply side is closely connected with the demand side,so when the production factor price distortion exerts impact on them,there is an interaction between the supply side and the demand side of the market.Therefore,the impact of the production factor price distortion on the macro economy is systematic,and it is necessary to understand the macroeconomic effects of the production factor price distortion from the perspective of general equilibrium.This paper first analyzes the changes of China’s production factor price distortion,which provides key parameters for subsequent simulation analysis.Then from the general equilibrium perspective,by constructing a dynamic stochastic general equilibrium DSGE model including labor price and capital price distortion,we analyze the impact mechanism of the production factor price distortion on macroeconomic variables such as total output,consumption,investment,employment and total factor productivity.On the basis of this,according to the characteristics of China’s production factor market,we further explore the mechanism of the impact of labor price heterogeneity distortion and capital price heterogeneity distortion on the above macroeconomic variables.First,this paper reveals the current status and causes of the production factor price distortion in China.The distortions of labor and capital prices are estimated by using production function method and provincial level data.The results show that labor and capital price distortion are mainly negative distortion which means the marginal output value is higher than the factor payment,and both show improvement trend.From the perspective of coordination,both labor price distortion coordination and capital price distortion coordination are at a high level,but the consistency of labor price distortion in neighboring provinces has weakened,while the consistency of capital price distortion in neighboring provinces has increased first and then weakened.Then,through reviewing the process of the market-oriented reform of production factors,the reasons behind the distortion of China’s labor and capital prices were systematically summarized.Second,this paper incorporates labor price and capital price distortion into the DSGE model,and simulates the impact of labor price and capital price distortion on the macroeconomic variables.The simulation results show that the reduction of the labor price and capital price negative distortion will have a positive positive impact on the equilibrium value of macroeconomic variables by increasing the labor force income and investment expenditure.At the same time,the impact of the shock formed by the reduction of the labor price and capital price negative distortion will lead to macroeconomic variables to fluctuate upward.In addition,the reduction of the labor price and capital price distortion will reduce social welfare losses.Using the relevant data of China,we empirically analyze the impact of the production factor price distortion on the macro economy from the static and dynamic perspectives,and we get a similar conclusion.Third,according to the price heterogeneity distortion characteristics of the Chinese labor market,this paper incorporates the high-skilled labor price negative distortion and the low-skill labor price positive distortion into the DSGE model.The simulation results show that the reduction of both labor price distortion will have a positive impact on the equilibrium value of some macroeconomic variables.The impact of the shock formed by the reduction of the high-skilled labor price negative distortion will lead to macroeconomic variables to fluctuate upward,while the impact of the shock formed by the reduction of the low-skilled labor price positive distortion will lead to macroeconomic variables to fluctuate downward.In addition,the reduction of the high-skilled labor prices negative distortion will reduce social welfare losses,while the reduction of the low-skilled labor prices positive distortion will increase social welfare losses.Then,according to the price heterogeneity distortion characteristics of the Chinese capital market,this paper incorporates the private-owned capital price negative distortion and the state-owned capital price positive distortion into the DSGE model.The simulation results show that the reduction of the private-owned capital price negative distortion will have a positive impact on the equilibrium value of macroeconomic variables,while the state-owned capital price positive distortion will have a negative impact on the equilibrium value of macroeconomic variables.The impact of the shock formed by the reduction of the private-owned capital price negative distortion will lead to most macroeconomic variables to fluctuate upward,while the impact of the shock formed by the reduction of the state-owned capital price positive distortion will lead to most macroeconomic variables to fluctuate downward.In addition,the reduction of the private-owned capital price negative distortion will reduce social welfare losses,while the reducion of the state-owned capital price positive distortion will increase social welfare losses.Finally,this paper continues to examine another price heterogeneity distortion in China’s capital market,cooperating the real estate capital price positive distortion and the non-real estate capital price negative distortion into the DSGE model.The simulation results show that the reduction of both capital price distortion will have a positive impact on the equilibrium value of some macroeconomic variables.The shock formed by the reduction of the non-real estate capital price negative distortion will drive most macroeconomic variables to fluctuate upward,while the shock formed by the reduction of the real estate capital price positive distortion will drive most macroeconomic variables to fluctuate downward.In addition,the reduction fo the non-real estate capital price negative distortion will reduce social welfare losses,while the reduction of the real estate capital price positive distortion will increase social welfare losses.The conclusions of this paper indicate the impact of price distortion on the macro economy is multifaceted.In order to better promote the reform,the following principles should be followed:First,clarifying the boundary between government and market;second,enhancing the synchronization of market-based reforms of production factors among regions;third,eliminating labor market segmentation and ensuring free movement of labor;fourth,reducing credit discrimination and creating a fair playing field;Fifth,to hedge the negative impact of the reform by adopting a combination reform plan.