Declining Labor Share: Is China's Case Different?

18 Pages Posted: 3 Jan 2011  

Changyuan Luo

Fudan University

Jun Zhang

Fudan University - China Center for Economic Studies (CCES)

Multiple version iconThere are 2 versions of this paper

Abstract

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.

Keywords: economic development, globalization, labor share, privatization

JEL Classification: E25, F16, O11

Suggested Citation

Luo, Changyuan and Zhang, Jun, Declining Labor Share: Is China's Case Different?. China & World Economy, Vol. 18, No. 6, pp. 1-18, 2010. Available at SSRN: https://ssrn.com/abstract=1734195 or http://dx.doi.org/10.1111/j.1749-124X.2010.01217.x

Changyuan Luo

Fudan University

Jun Zhang (Contact Author)

Fudan University - China Center for Economic Studies (CCES) ( email )

China

Paper statistics

Downloads
1
Abstract Views
551