Change of Trade Mode and Decrease of Labor’s Income Share: Empirical Evidence from China’s Industrial Sector

Abstract

This chapter decomposes the labor’s share of income in industrial sector and finds the movement of industrial structure within the industrial sector explains minor part of the reason for declining labor’s share of income. We also analyze the effects of trade, technological progress and state-owned monopoly power by using the production cost model. It indicates that technological progress and decrease of monopoly power will impose a decrease on labor’s share of income. Ceteris paribus, the coefficient of import penetration rate in the trade variables is positive and significant. Regression in different stages shows that the changing of trade mode is main reason for declining labor’s share of income. In the time of import–export related processing trade in Pearl River delta, import penetration rate promote labor demand thus raise the labor’s share of income. While, in the time of export-led processing trade in Yangtze River delta, the simultaneous decline of import penetration rate and labor’s share of income is the result of lowering raw material and labor cost from profit maximizing enterprises. Therefore, the import penetration has different mechanisms on labor’s share of income in different development stages in China.