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.
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
Journal of Finance and Economics Vol. 45, Issue 08, pp. 28 - 42 (2019) DOI:10.16538/j.cnki.jfe.2019.08.002
 Bai C E, Lu J Y, Tao Z G. An empirical study on the effects of ownership reform in China[J]. Economic Research Journal, 2006, (8): 4-13. (In Chinese)
 Bai C E, Qian Z J. Determinants of labor income share: Evidence from Chinese provincial panel data[J]. The Journal of World Economy, 2010, (12): 3-27. (In Chinese)
 Bai C E, Qian Z J, Wu K P. Determinants of factor shares in China’s industrial sector[J]. Economic Research Journal, 2008, (8): 16-28. (In Chinese)
 Bai C E, Qian Z J. On the increase in the Chinese aggregate capital income share: An investigation from provincial perspective[J]. Journal of Tsinghua University (Philosophy and Social Sciences), 2009, (4): 137-147. (In Chinese)
 Chen B K, Zhang C C. Human capital and housing prices in China cities[J]. Social Sciences in China, 2016, (5): 43-64. (In Chinese)
 Huang W L, Yao Y. The impact of SOE reform on employment: Evidence from 11 cities[J]. Economic Research Journal, 2007, (3): 57-69. (In Chinese)
 Huang X H, Xu S. Reasons for the decline of labor share: From the angle of labor-saving technical progress[J]. Economic Research Journal, 2009, (7): 34-44. (In Chinese)
 Jia S, Shen G J. Corporate risk and labor income share: Evidence from China’s industrial sector[J]. Economic Research Journal, 2016, (5): 116-129. (In Chinese)
 Luo C Y, Chen L. Will financing constraints lead to a decline in labor income share? An empirical study based on Chinese corporate data provided by the World Bank[J]. Journal of Financial Research, 2012, (3): 29-42. (In Chinese)
 Luo C Y, Zhang J. An economic explanation of the decline of labor income[J]. Management World, 2009, (5): 25-35. (In Chinese)
 Lv B Y, Guo Q W. Calculation on China’s functional income distribution and redistribution[J]. Economic Research Journal, 2012, (10): 27-40. (In Chinese)
 Qian Z J, Zhu X D. Is China’s labor share really low?[J]. The Journal of World Economy, 2013, (10): 27-53. (In Chinese)
 Sheng D, Lu Y. Does privatization of SOEs reduce worker’s bargaining power?[J]. Journal of Financial Research, 2017, (1): 69-82. (In Chinese)
 Song L G, Yao Y. Impacts of restructuring on firm performance in China[J]. Social Sciences in China, 2005, (2): 17-31. (In Chinese)
 Tong J D, Hong Q L. The dynamic effects of privatization reform of state-owned enterprise on wage and employment of Chinese manufacturing enterprises[J]. Industrial Economics Research, 2017, (2): 102-113. (In Chinese)
 Wang W, Guo X Q, Ai C R. Financing constrains, the decline of labor’s share and China’s low consumption[J]. Economic Research Journal, 2013, (11): 100-113. (In Chinese)
 Wei X H, Dong Z Q, Huang J L. Does labor union improve labor share? Theoretical analysis and evidence from private firms in China[J]. Economic Research Journal, 2013, (8): 16-28. (In Chinese)
 Xiao W, Zhou M H. Change of trade mode and decrease of labor share: Empirical evidences from China’s industrial sector[J]. Journal of Zhejiang University (Humanities and Social Sciences), 2010, (5): 154-163. (In Chinese)
 Yang J D, Yang Q J. Growth pressures, stimulus plan and industrial land transfer[J]. Economic Research Journal, 2016(1): 99-113. (In Chinese)
 Zhang J, Chen Z Y, Zhou X Y. Research on the inhibitory effects of exporting on labor’s share[J]. The Journal of Quantitative and Technical Economics, 2012, (7): 54-76. (In Chinese)
 Zhang L, Li J Y, Xu X X. Globalization, biased technological change and factor shares[J]. China Economic Quarterly, 2012, (2): 409-428. (In Chinese)
 Zhou M H, Xiao W, Yao X G. Enterprise heterogeneity, ownership structure and labor income share[J]. Management World, 2010, (10): 24-33. (In Chinese)
 Azmat G, Manning A, Van Reenen J. Privatization, entry regulation and the decline of labor’s share of GDP: A cross-country analysis of the network industries[R]. CEPR Discussion Working Paper 6348, 2007.
 Feenstra R, Li Z, Yu M. Exports and credit constraints under incomplete information: Theory and evidence from China[J]. Review of Economics and Statistics, 2014, 96(4): 729-744.
 Hsieh C, Song Z. Grasp the large, let go of the small: The transformation of the state sector in China[J]. BNER Meeting Papers No.21006, 2015.
 Jefferson G, Su J. Privatization and restructuring in China: Evidence from shareholding ownership, 1995-2001[J]. Journal of Comparative Economics, 2006, 34(1): 146-166.
 Song Z, Storesletten K, Zilibotti F. Growing like China[J]. American Economic Review, 2011, 101(1): 196-233.
Cite this article
Lin Lingtao, Liu Haiyang, Lu Yuduo. 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[J]. Journal of Finance and Economics, 2019, 45(8): 28-42.
Previous: How to Transform Liability of Foreignness into Asset of Foreignness under the “Belt and Road” Initiative? A Case Study from the Perspective of Social Network