The Incentive Effect And A Reasonable Range Of Labor Cost In Chinese Productive Service Industry

Productive service industry plays a very important role in economics. China stills not a huge manufacturing country since the lack of powerful productive service industry. In recent years, labor costs meet a rapid increase in various industries, especially productive service industry. Lots of scholars hold different views about whether the increase of labor costs will promote its productivity. Hence, in this article, I will test the relationship between labor costs and labor productivity in Chinese productive service industry through Empirical analysis.Statistical data shows that the labor costs in Chinese productive service industry remains a high level and increasing notably. According to Efficiency Wage Theory and the Endogenous Growth Theory, the rise of labor costs will promote labor productivity. Seguino mentioned that there is a reasonable range, which means in this range the rise of labor costs will have a positive influence on labor productivity. Meanwhile, beyond this range means the rise of labor costs will have a negative influence on labor productivity. In this article, data of Chinese productive service industry from2004to2010were used to analysis the relationship between its labor costs and labor productivity. The results suggest that the rise of labor costs in Chinese productive service industry have a positive effect of its labor productivity, which represent that the labor costs is in a reasonable range.Furthermore, the results also tell us that the common wage level in China trend to lower than reasonable. The cheap labor in China benefits a lot of our competitive in world business. However, with disappear of demographic bonus, China have to find a new way to keep a long-term economic growth, like renovation of production techniques.