The lag of factor market reform is a prominent problem in China’s reform process, and the negative distortion of factor prices is an important performance. This paper studies the causes of factor price distortion from the perspective of state-owned enterprises. On the one hand, financial repression and ownership discrimination have caused state-owned enterprises to acquire a large amount of capital at below-market prices. It implies that, when the proportion of state-owned enterprises increases, the price of capital decreases, thereby intensifying negative distortion of capital price. On the other hand, state-owned enterprises have the ability and the incentives to pay higher wages to employees, possibly improving negative distortion of labor price instead. The first reason is that, because the state-owned enterprises take the multi-tasks, like maintaining social security and improving the income distribution, the governments provide the subsidies, protection and preferential policies for the SOEs in order to make up for their losses, thus making the SOEs face less competitive pressure. The second reason is governance structure of state-owned enterprises. In SOEs, the managers are more likely to form alliances with employees and pay higher wages to them. From this point of view, the SOEs may reduce the negative distortion in labor price. In order to test the hypotheses above, this paper first measures the distortion of capital price and labor price in 171 three-digit industries using C-D production function method and the China Industrial Enterprise Database. The results show that, the prices of capital and labor are depressed in most of the industries, and the distortion of capital price is more serious than labor price, and both the distortion of capital price and labor price has an upward tendency within the sample period from 1998 to 2007. Then we analyze the effect of state-owned enterprises on factor price distortion by using two-way fixed effect model. The regression results show that the impact of the proportion of state-owned enterprises on factor price distortion is asymmetric, that is, the higher the proportion of state-owned enterprises is, the more serious negative distortion of capital price is, but the negative distortion of labor price is smaller. Even after changing the measurement of the proportion of SOEs, the results are still robust. In order to deal with the endogenous problem, we choose the average age of firms within industries as the instrument variable for the proportion of state-owned enterprises, and the results are the same as the baseline regressions. As Hsieh and Klnow （2009） used 10% as the capital price, we calculate the distortion of capital price by using their data and repeat the OLS regression and IV regression, and the above results still exist. This paper has important policy implications. Although the role of state-owned enterprises in improving the income of laborers is worthy of recognition, it is still necessary to reduce the proportion of state-owned enterprises in competitive industries, as the negative effect of SOEs on the distortion of capital price is much bigger than the positive effect of SOEs on the distortion of labor price. And the other effective ways to eliminate the distortion include deepening the reform of mixed ownership in SOEs, accelerating the reform of financial market, promoting free flow of labor, reducing government subsidies and protection to state-owned enterprises, and expanding opening-up. Those will help to optimize the allocation of resources to improve the overall welfare level of society.
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Chuanhai Jiang, Editor-in-Chief Rong Lu, Vice Editor-in-Chief
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Asymmetric Effect of State-owned Enterprises on Factor Price Distortion
Journal of Finance and Economics Vol. 44, Issue 04, pp. 34 - 46 (2018) DOI:10.16538/j.cnki.jfe.2018.04.003
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Cite this article
Luo Zhi, Liu Weiqun. Asymmetric Effect of State-owned Enterprises on Factor Price Distortion[J]. Journal of Finance and Economics, 2018, 44(4): 34-46.
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