Capital Market Liberalization and Enterprise Labor Income Share: A Quasi-natural Experiment Based on “Shanghai-Hong Kong Stock Connect” Scheme

Jiang Hongli, Hu Linke, Jiang Pengcheng

Journal of Shanghai University of Finance and Economics Vol. 24, Issue 01, pp. 32 - 47 (2022)  DOI:10.16538/j.cnki.jsufe.2022.01.003

Summary

Increasing labor income share and opening the capital market are related to the formation of a new development pattern of “domestic and foreign markets can boost each other, with the domestic market as the mainstay”, and the realization of the goal of common prosperity. As for labor income share, scholars have made in-depth explanations from the perspectives of industrial structure change, biased technological progress and system reform. However, as one of the important measures of China’s financial system reform, the impact of capital market liberalization on labor income share is rarely concerned by scholars. Capital market liberalization can reduce capital cost, improve TFP, and then affect labor income share. However, whether capital market liberalization can promote labor income share depends not only on the elasticity of capital-labor substitution, but also on the direction of technological progress. It is difficult to judge directly without other conditions. In view of this, under the panoramic logical framework of “capital market liberalization-enterprise labor income share”, taking the implementation of “Shanghai-Hong Kong Stock Connect” scheme as a quasi-natural experiment, and based on the data of non-financial listed companies from 2009 to 2020, this paper studies labor income share from the new perspective of capital market liberalization. The study shows that: The implementation of “Shanghai-Hong Kong Stock Connect” scheme significantly reduces the labor income share of the target company. After a series of robustness tests such as placebo test and controlling high-order fixed effect, this conclusion is still valid. Its internal mechanism is that the implementation of “Shanghai-Hong Kong Stock Connect” scheme intensifies the deepening of capital and improves the TFP of enterprises. However, because the elasticity of capital-labor substitution is greater than 1 and technological progress is biased towards capital, the labor income share of the target company decreases. Further research shows that: The implementation of “Shanghai-Hong Kong Stock Connect” scheme mainly reduces the average wage level of the target company, and has no significant impact on labor productivity. The heterogeneity study shows that: The implementation of “Shanghai-Hong Kong Stock Connect” scheme only inhibits the labor income share of labor-intensive enterprises, enterprises with poor corporate governance and manufacturing enterprises. Compared with executives, the crowding effect on the labor income share of ordinary employees is stronger. This paper not only expands the research on the economic consequences of capital market liberalization, but also enriches the relevant literature in the field of national income distribution. The research conclusion also contains positive policy implications: In the process of “making new ground in pursuing opening up on all fronts”, labor factors, especially high-skilled labor, should be paid attention to, and the path of capital deepening should be shifted from “emphasizing capital and neglecting labor” to “optimizing capital and attaching importance to skills”; the innovation strategy of guiding and encouraging enterprises should be changed from “introduction and imitation” to “breakthrough and subversion”; technological progress should be changed from a preference for capital to equal emphasis on capital and labor, or even a preference for labor, so as to increase the proportion of labor income in the added value of enterprises.

Keywords

“Shanghai-Hong Kong Stock Connect” scheme; enterprise labor income share; capital deepening; TFP; DID