The Puzzle of SOE Reform and the Change of Labor Income Share: From the Perspective of the Unbalanced Growth of Enterprise Efficiency and Wage Level

Abstract

The role of SOEs in the economic development is crucial, so the reform involving state-owned economies is related to the healthy development of the entire economy. In order to further enhance this role, the state has formulated and implemented a series of measures to promote the reform of SOEs from the early 1990s. However, the reform of SOEs to promote the rapid development of the economic system has also caused concern in all sectors of society. With the steady advancement of SOE reform, the labor income share of reformed enterprises has shown a significant downward trend. Existing scholars mainly explain the puzzle from the perspective of reducing factor market distortions and wage bargaining power. Different from the previous research literature, this paper finds that the salary level of employees has not decreased significantly after the reform, and it shows a certain upward trend. By constructing a theoretical model, this paper gives a new perspective to explain the reduction of labor income share in the restructuring of SOEs. It argues that the share of labor income is composed of two parts: wage level and labor productivity. The reform of SOEs has produced a lifting effect on wage levels and labor productivity. Considering the existence of competition among laborers in the labor market, the wages of employees have not risen sharply with the productivity of labor, resulting in an unbalanced growth in efficiency and wage after the reform of SOEs. This paper examines the reform of SOEs between 1999 and 2007. The empirical study supports the above findings using the fixed-effects model. This conclusion is still valid by replacing the definition criteria of SOEs, adopting the propensity score matching method to overcome the sample selection bias, and using the interaction between local fiscal pressure and the number of SOEs as the instrumental variable of the reform. In the long run, the impact of the difference in labor income share caused by SOE reform has gradually weakened. Finally, this paper finds that enterprises in capital-intensive industries, large enterprises, and enterprises in the central and western regions are more affected by the reform, and the increase in wage and labor efficiency is also more obvious. This paper reveals the underlying reasons for the decline in labor income share, which resolves people’s doubts about SOE reform and concerns about the growth of non-SOEs’ share. It provides a theoretical basis for deepening market-oriented reforms and policy advice for accelerating salary structure adjustments. At the same time, this paper examines the changing trend of labor income share and its economic logic caused by SOE reform from the micro-view system, which also provides a solid micro-foundation for explaining the puzzle for the decline of labor income share.