The Determinations For The Declining Labor Share

Since1990, the average growth rate of Jiangsu province has reached16.75%,however, the labor share has shown a sharp decline. Data indicated that in1990thelabor share was49%, while in2007, the labor share was37.2%, declining11.8%.Meanwhile, the profits of enterprises was increasing, the capital share rose from37.4%in2007to46.2%in2010. The decreasing labor share has engaged the incomegap between the capital factor owners and the labor factor owners, which is not only aobstacle to income distribution of individuals but also a barrier to the upgrading ofindustrial structure and sustainable economic development. So it has significantimportance in exploring the factors which contribute to the declining labor share.The topic on labor share in different countries and area has been researched byscholars at home and abroad from different aspects, which concludes globalization,factor substitution elasticity and ownership. It is believed that they haven’t put muchemphasis on the factors of the declining labor share of the local government,especially the developed provinces in the southeast.Using the panel data of13cities of Jiangsu province from1995to2010, thisessay empirically analysis the factors of the labor share and the way they placed on itby using the fixed effects models, the Econometric methods of DIF GMM and SYSGMM. Besides, the essay has comprised the labor share with the sight of the wholeworld and decomposed the declining labor share of Jiangsu province.The declining labor share of Jiangsu province was due to the industrial effect andstructural effect, the former increased the labor share while the later decreased thelabor share. The rise of the ratio of service industry of gross domestic production willincrease the labor share in the whole economy. The ascending fiscal expenditure ofgross domestic production will decrease the labor share through higher tax rate in thedevelopment of the local cities. The financial deepen in the operating of the localeconomy is surely decreasing the labor share by adding per capital. Enlarging foreigntrade increases the labor share in the circumstance of globalization, while tradeprotectionism decreases it.With the policy of lowing the tax rate and the fiscal expenditure of grossdomestic production and vigorously development of the service industry, the laborshare will increase in the long run. Meanwhile, trade protectionism shall be given up and the foreign direct investment should be rationally used. By taking these measures,the labor share of Jiangsu province shall increase in the long term.