The Impact of Service Trade Innovation Development on Firms' Labor Income Share: Evidence From China

Xinyan Li, Li Jing and Weiyi Yan

Growth and Change, 2026, vol. 57, issue 2

Abstract: The persistent decline in labor income share has been a long‐standing subject of concern, yet existing literature has yet to reach a unified consensus on the explanation for this phenomenon. This study, utilizing data from publicly listed firms in China, constructs a multi‐period difference‐in‐differences model for empirical testing, with the aim of assessing the impact of China’s service trade innovation and development policy on corporate labor income share. The results indicate that service trade innovation significantly enhances the labor income share of firms, achieving a balance between development and structural optimization. This effect is particularly pronounced in firms with low levels of servitization, low production efficiency, labor‐intensive industries, and those located in non‐provincial capital cities. Mechanism analysis reveals that the service trade innovation development zones influence labor income share through channels that alleviate financing constraints and adjust corporate employment behavior. The study’s conclusions not only offer new perspectives and insights into the fluctuations of labor income share but also provide important policy implications for countries striving to balance efficiency and fairness while ensuring stable economic growth during the promotion of service trade strategies.

Date: 2026
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