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Declining Labor Share: Is China's Case Different?
Author(s) -
Luo Changyuan,
Zhang Jun
Publication year - 2010
Publication title -
china and world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.815
H-Index - 28
eISSN - 1749-124X
pISSN - 1671-2234
DOI - 10.1111/j.1749-124x.2010.01217.x
Subject(s) - wage share , economics , china , bargaining power , labour economics , foreign direct investment , market share , profit (economics) , wage , shock (circulatory) , labor demand , competition (biology) , factor shares , market economy , efficiency wage , production (economics) , macroeconomics , medicine , ecology , finance , biology , political science , law , microeconomics
This paper explores why labor share in China has declined since the middle of the 1990s. Existing literature usually ascribes the labor share decline in developed countries to biased technological progress. However, our investigation shows that China's case is different. Using a simultaneous equation model estimated with three‐stage least squares, we find that FDI, levels of economic development and privatization have negative effects on the labor share. The negative influence of FDI on labor share results from regional competition for FDI, which weakens labor forces' bargaining power. A U‐shaped relationship exists between labor share and the level of economic development, and China is now on the declining part of the curve. The negative effects of privatization on the labor share stem from the elimination of the so‐called “wage costs eroding profit” situation and the positive supply shock on the labor market.