Effects Of Merchandise Trade Structure Changes On Labor Income Share

The continuous decline of labor’s income share has become a hot topic not only for public debate but also for academic research in recent years. For this economic phenomenon, existing studies mainly discuss this problem from the perspectives of the development stage, the industrial structure, globalization, labor markets, technological advances and so on. Admittedly, these studies have revealed the cause of problems and come up with solutions to some extent, but they ignore the effects of changes in trade structure. In fact, the changes in the structure of foreign trade may be the important factors that affect the labor income share. while the labor’s income share of our country continues declining in recent10years, it is also the period of continuing integration of globalization, openness and meanwhile the structure of foreign trade continuing to improve. Therefore, this paper aims to investigate the movement of China’s labor’s income share by using the current changes in the structure of foreign trade as the point of entry. The two key research questions are "How does the evolution of foreign trade structure affects the labor share of income?" and "What is the mechanism and transmission mechanism?"This paper reviews the domestic and relevant research overseas, according to the reality that China’s foreign trade structure affects the changes in labor income share, this article raises a theoretical hypotheses to help solve the problems. Using the panel data of our industrial sector which includes34industrial sub-sectors from1993to2007, we have an empirical test on the impact of the changes of trade structure on labor’s income share. The paper is organized as follows:The first chapter of this paper is an introduction. The second chapter summarizes the theoretical and empirical literatures which discuss about labor’s income share of national income. Accordingly, chapter3to6discuss these two core issues by building models, data collection and empirical analysis to explore the mechanism of change in the labor share of income from the perspective of changes in trade structure. Finally, we will conclude our study, state the limitation of this research and point out the future research directions.We generalize our main conclusions as follows:Firstly, theoretical analysis shows that international trade not only has a direct impact on the labor income share by international division and specialization, but also has an indirect effect through two mechanisms as factor intensity change and technology deflection.Secondly, the result shows that the labor income share of our industrial sectors rises slightly at the beginning and then drops significantly through an inverted U-shape orbit during the1993-2007. This change is mainly caused by the industry segment itself.Thirdly, the empirical studies have found that the trade structure has a significant effect on the share of labor income. The export has a significant negative effect on the share of labor income, while the import has a positive effect after controlling other influencing factors. Moreover, the degree and the direction of the effects of import and export differ in the different types of factor intensity industries. Finally, we discuss the robustness of econometric model from the control of the endogenous variables, model specification, variables selection and sample points such as abnormal parties, the test results show that the results still stand, and thus the conclusion is robust.Fourthly, despite the changes in the structure of foreign trade on China’s labor share of income have a significant negative effect, but it does not mean that we should discourage the upgrade of foreign trade structure to enhance labor income share. Instead, in order to raise the labor income share, we should continue to deepen the market-oriented reforms to reduce the intervention of product and factor markets, break the monopoly system, give full play to the free market mechanism to make the trade structure continue to upgrade.Compared to the existing literature, there may be three main contributions in this paper:Firstly, we discuss the reasons for the changes of the labor income share from a perspective of the recent trade structural changes. Secondly, this article analyzes not only the direct impacts of the trade structure changes on the labor income share, but also its transmission mechanisms. Thirdly, considering the trade structure change may have different effects on the different factors of intensive industry. This paper not only investigated the effects of trade structure changes on the whole industrial sector, but also on the industries of different factor intensity respectively.