Open AccessFactor Misallocation and Declining Labor Income-Share in China
Author(s) -
Songtao Wang,
Tristan Kenderdine,
Qishui Chi
Publication year - 2017
Publication title -
journal of economics and public finance
Language(s) - English
Resource type - Journals
eISSN - 2377-1046
pISSN - 2377-1038
DOI - 10.22158/jepf.v3n2p188
Subject(s) - economics , factor shares , wage share , labour economics , china , income distribution , panel data , capital (architecture) , income shares , affect (linguistics) , production (economics) , efficiency wage , macroeconomics , inequality , wage , econometrics , history , mathematical analysis , linguistics , philosophy , mathematics , archaeology , political science , law
In China’s present economic development, factor misallocation and labor’s low income-share both are important and interrelated, with factor misallocation being an important reason for the decline in China’s labor income-share. Theoretical modeling demonstrates that if capital-labor is substitutable, the factor misallocation will lead to a decline in labor income-share. Empirical studies, using 2001-2013 provincial panel data show that factor misallocation significantly reduces labor income-share, even after controlling for other factors that affect the labor-share. The conclusion is both significant and robust. Therefore, economic policy which optimizes factor allocation will improve labor’s income-share.