Productive Public Goods Supply And The Change Of Aggregate Labor Income Share

The existing literatures on Chinese labor income share focused on the technological progress, industrial structure, product structure, factor market, and financial globalization effects. But as this article has repeatedly stressed that the economic structure change is just the result of economic development, rather than the cause of the economic development. Probing into the cause of the changes in China’s labor income share and seek solution to China’s low labor income share of the solution, we need to study from the system point. Against the background of the Chinese decentralization system, this paper studies the impacts of the productive public goods supply on China’s aggregate labor income share comprehensively. Chinese decentralization is considered to be the source of China’s economic development miracle. Now China’s economy is facing many problems, many studies rethink the negative effect of Chinese decentralization. In this paper, the study also based on this consideration. This paper regards the public goods supply as a starting point, rather than Chinese decentralization directly. Firstly, this paper proves that under the Chinese decentralization, local government tends to offer too much productive public goods but ignores the productive public goods supply due to the "political championships", using the mathematical model. This kind of public goods supply structure will influence the change of China’s labor income share by improving the capital intensive degree of production. There’re two channels. One is that the productive public goods make it convenient for the the enterprise to increase profits, so as to encourage the enterprise to have more capital formation. The second is the productive public goods make more contribution to the development of the capital-intensive second industry, thus to promote the improvement of the whole economic capital intensive degree. Then this paper studies the influence of the productive public goods on the labor income share using static and dynamic panel data at the provincial level for the period1993～2011. The empirical analysis reveals the productive public goods supply is significant factor for the change of labor income share but the impacts have obvious regional differences. In addition, the results confirm two channels for the effects of productive public goods supply. According to the research findings, this paper proposes several countermeasures that inhibit the labor income share more reasonable.