An Empirical Research Of China's Labor Compensation Share In Initial Distribution

For three decades of reform and opening up, China has developed rapidly and made remarkable achievements, annual economic growth rate of 10%. China has became the second largest economy in the world, following the U.S. China's foreign trade volume also witness a substantial growth. In 1978, China's foreign trade volume ranked 32nd in the world trading system. In 2007, as the world's second largest exporting country, China's export volume has grown up to 1.2 million, after Germany. According to the Stolper-Samuelson's theory, a country with a large population has a comparative advantage at labor-intensive industry. In the process of export expansion, the income distribution should be inclined to labor, and the share of labor compensation in GDP should increase. However, at present, the prominent feature of China's initial distribution of national income is that the labor compensation share is low and declining. Clearly, China does not apply to the theory. We need an explanation for this phenomenon.In this paper, we will analyze the current situation of labor compensation share in GDP in a comparative way:vertical comparison, we get the series of labor compensation share in GDP ranging from 1978 to 2009; horizontal comparison, we compare China's data with America's to illustrate the current situation. Using of factor analysis in statistics, we can find out the reasons for changes of compensation share in GDP.Latest researches show that there are two reasons for decline of labor compensation share in GDP:changes in industrial structure and ratio of labor compensation to value added in different sectors. In the long term, structural transformation contributes to the decline of labor compensation share in GDP. However, in the short term, the industrial structure is relatively stable, so the recent changes in labor compensation share in GDP is mainly caused by the change of ratio of labor compensation to value added in different sectors. Based on these researches, furthermore, we analyze the sectoral labor compensation. Our regression analysis with data shows that supply and demand of labor, collective bargaining ability of labor force, the stock of workers'human capital, dual economy structure are the factors that affect the share of labor compensation.In recent China, there are some problems, such as, workers' incapability of collective bargaining, workers'inferior working skills, inadequate employment, labor market imperfections and unreasonable relationship between labor and capital. Therefore, in this paper, we will provide recommendations for government, workers, and employers.