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This paper explores why labor share in China has declined since the middle of the 1990s.Existing literature usually ascribes the labor share decline in developed countries to biasedtechnological progress.However, our investigation shows that China's case is different.Using a simultaneous equation model estimated with three-stage least squares, we find thatFDI, levels of economic development and privatization have negative effects on the laborshare.The negative influence of FDI on labor share results from regional competition forFDI, which weakens labor forces'bargaining power.A U-shaped relationship existsbetween labor share and the level of economic development, and China is now on thedeclining part of the curve.The negative effects of privatization on the labor share stem fromthe elimination of the so-called “wage costs eroding profit” situation and the positive supplyshock on the labor market.
This paper explores why labor share in China has declined since the middle of the 1990s.Existing literature usually ascribes the labor share decline in developed countries to biasedtechnological progress. Hosted, our investigation shows that China's case is different. Using a simultaneous equation model estimated with three-stage least squares, we find that FDDI, levels of economic development and privatization have negative effects of FDI on labor share results from regional competition for FDI, which weakens labor forces' bargaining power. A U-shaped relationship exists between labor share and the level of economic development, and China is now on thedeclining part of the curve. The negative effects of privatization on the labor share stem fromthe elimination of the so-called “wage costs eroding profit” situation and the positive supplyshock on the labor market.