Can Social Capital Narrow the Gap between Wages and Labor Productivity? Measurement and Conduction Mechanism Analysis

Pu Yanping; Gu Ran; Cheng Xiao

doi:doi:10.16538/j.cnki.jfe.2018.05.009

Summary

In the past forty years, China has made great achievements in economic construction, and also faces many difficulties and challenges. In the critical period of changing the development way, China should not only pay attention to the promotion of labor productivity, but also take into account the synchronization of labor compensation and productivity. From the perspective of social capital as informal institution, we use CFPS2010 data to objectively assess the gap between wages and labor productivity in China, and examine the impact of social capital on the gap and the conduction mechanism. With the help of stochastic frontier analysis, we calculate the gap between wages and labor productivity in Chinese labor market, and the mean gap is about 33.2%~45.7%. On this basis, the empirical study shows that, social capital can narrow the gap between wages and labor productivity remarkably. On average, if social capital expands by 1%, then the gap will narrow by 3.42%. These labor forces can benefit more from social capital whose wages are closer to their productivity. It means that social capital widens the disparity between different labor groups in a way. To overcome the endogenous problem, we construct two instrumental variables of social capital: the average cash gift at community level, and the importance of foreign dialects for labors. We also design a placebo test. It has been verified that social capital itself, rather than the other characteristics of the labor forces associated with their social capital, has affected the gap between wages and labor productivity. A series of robustness tests support above conclusions. Furthermore, the analysis of mediating effect model shows the reasons why social capital can narrow the gap between wages and labor productivity as follows: firstly, the labor forces who have more social capital can join the formal sectors more easily, in which the wages are closer to labor productivity; secondly, the labor forces who have more social capital can get more trust, resources and promotion opportunities; thirdly, social capital helps to reduce information asymmetry and improve the degree of matching between labor forces and jobs by sending messages. It is worth noting that, if more and more persons use social capital within a region, then social capital effect for individual labor will be weaken. As an informal resource allocation method, social capital gives a preferential treatment for a part of labor forces. With the advancement of marketization, the role of social capital has been continuously weakened. Therefore, market-oriented allocation and regular society are the ultimate choices for the reform. In the new era, China should perfect the system and mechanism of distributing according to factors, pay efforts to reduce the gap between wages and labor productivity, actively create a market environment with free flow of labor, flexible price response and fair and orderly competition, and promote the income distribution more reasonable and orderly.