FACTOR MISALLOCATION, INDUSTRIAL STRUCTURE AND LABOR INCOME SHARE IN CHINA

Minghui Xin, Min Gong () and Pan Xie ()
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Minghui Xin: Shanghai Gold Exchange, Shanghai 200001, P. R. China†School of Management, Fudan University, Shanghai 200433, P. R. China§International Business School, Shaanxi Normal University, Xi’an, Shaanxi 710119, P. R. China
Min Gong: ��Centre for Macroeconomic Research, Xiamen University, Xiamen, Fujian 361005, P. R. China
Pan Xie: �International Business School, Shaanxi Normal University, Xi’an, Shaanxi 710119, P. R. China

The Singapore Economic Review (SER), 2023, vol. 68, issue 06, 1967-1990

Abstract: By presenting a two-sector DGE model, this paper investigates the relative misallocation coefficients for capital and labor within three industries in China from 1993 to 2018, then discusses the effect of factor misallocation and factor substitution elasticity on the labor income share. The following three conclusions were reached. (1) The overall labor income share reduced due to the industrialization before 2007, but after 2007 it increased by promoting the proportion of services. (2) Compared with the situation without barriers, the cross-industry factor misallocation reduced the proportion of labor in manufacturing by 44% during industrialization and in services by 5.05% during de-industrialization, respectively. (3) Eliminating the factor misallocation could raise the labor income share by 4.6% in industrialization, but it shows a weak effect during de-industrialization.

Keywords: Industrial structure; labor income share; factor substitution elasticity; factor misallocation (search for similar items in EconPapers)
JEL-codes: D58 E64 L16 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1142/S0217590820500290

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