Household Consumption,Income Distribution And Skill-Biased.Technological Progress,in China’s Structural Transformation

In his Nobel Prize acceptance speech,Kuznets referred to the redistribution of production resources among different sectors during the process of economic growth as "economic structural transformation." Generally,structural transformation manifests as a shift of labor from the agricultural sector to the industrial sector,and eventually to the service sector.Along with economic growth,the process of structural transformation represents a series of key evolutionary processes,such as the redistribution of production factors,technological advancements in production sectors,and income distribution among residents.It is one of the core issues in modern economics.Therefore,Kuznets also regarded structural transformation as one of the six major characteristics of modern economic growth.China’s structural transformation is consistent with that of most countries and regions,but with some differences.Taking the labor share of the three sectors from 1978 to 2018 as an example,the share of labor in the agricultural sector decreased from 70.5%in 1978 to 26.1%in 2018,while the share in the industrial sector increased from 17.3%to 27.6%.The share in the service sector rose from 12.2%to 46.3%,becoming the sector with the largest share of labor in the economy.However,although China’s structural transformation has been rapid,it lacks momentum.For example,the development of China’s service sector is still not as robust as that of developed countries during the same period.Due to the household registration system,labor in the agricultural sector has not effectively entered the non-agricultural sectors.The quality of structural transformation in China’s non-agricultural sectors is currently not high,and so on.These issues hinder China’s transition from high-speed development to high-quality development.Therefore,studying China’s economic structural transformation,analyzing the reasons for the differences between China and other countries,is of great significance for the current economic development.This is also the starting point for the topic of this article.In order to conduct an in-depth study on China’s structural transformation,this article approaches the topic from three aspects.Firstly,it seeks to understand the contribution of household consumption to structural transformation.Classic literature divides the channels influencing structural transformation into the supply side and the demand side.The supply side measures the impact of relative productivity growth among sectors on labor reallocation.The demand side measures the role of consumer preferences in structural transformation.Currently,domestic literature mainly uses macro data to calibrate model parameters for demand-side analysis,overlooking the characteristics of micro-level consumers.There is a lack of research analyzing structural transformation from a micro perspective.This article is the first in China to use micro-level data to analyze the country’s economic structural transformation.The research findings indicate that for every 1%increase in Chinese consumers’ income,consumption of agricultural products and industrial goods increases by 0.51%and 1.11%,respectively.Consumption of service sector products increases by 1.31%.When considering only the supply-side and demand-side channels,counterfactual experimental results show that the demand side explains 80%of China’s structural transformation from 1978 to 2019.Secondly,based on the study of demand-side factors,this article analyzes the impact of income distribution on structural transformation.As consumer preferences explain a significant portion of structural transformation,the article proposes the hypothesis that income inequality inhibits the process of structural transformation.This is the first piece of literature studying the influence of income inequality on structural transformation.Using data from Chinese prefecture-level cities and panel data from various countries worldwide,empirical results demonstrate that when income inequality is higher,local industrial structural transformation is less complete.To address endogeneity issues related to structural transformation and income distribution,the article employs a series of instrumental variables and provides robust theoretical models to support the results.These research findings suggest that for poor countries experiencing stagnant structural transformation,improving local income distribution has a positive impact on the process.For relatively developed countries like China,improving income distribution is beneficial for achieving high-quality development in the next phase.Thirdly,the article examines the structural transformation of China’s non-agricultural sectors.Different from developed countries,China’s industrial structural transformation is characterized by a dominance of low-skilled service industries.Empirical evidence suggests that the transfer of high-skilled labor from highskilled service industries to low-skilled service industries is the main cause of this phenomenon.Therefore,understanding the reasons behind the transfer of high-skilled labor between sectors is crucial.By establishing a three-sector structural model with heterogeneous labor and estimating/calibrating model parameters using micro-level consumption data and macroeconomic data,the study explores the influence of skill-biased technological progress,overall supply of high-skilled labor,neutral technological progress,and wage gaps between high-and low-skilled labor on the transfer of high-skilled labor.The research findings demonstrate that skill-biased technological progress is the main factor influencing the transfer of high-skilled labor.These research results have significant implications.They indicate that to guide China’s economy towards high-quality development,improving the technological level of skill-intensive industries is crucial,while the mass cultivation of highly educated labor is of limited significance.Additionally,this study partially explains the sluggish development of China’s service sector,suggesting that development should be driven by high-skilled service industries to promote the development of low-skilled service industries.In conclusion,this article is the first comprehensive analysis of China’s structural transformation from a micro perspective.It clarifies the role of household consumption in structural transformation,demonstrates the impact of income distribution on structural transformation,and analyzes the issues present in the structural transformation of China’s non-agricultural sectors.It lays a micro-level foundation for future research on China’s structural transformation and provides valuable policy recommendations.