Research On The Effects Of Human Capital On Labor's Share Of Income

After the primary income distribution,national income is divided into three parts: labor's revenue,capital's revenue and government's revenue.Many research come to the conclusion that the labor's share of income in China is in the process of decline.It could lead to the enlarged gap of income distribution and consumer recession.Then it would be a serious challenge for China to stimulate growth by boosting domestic demand.Human capital has profound influence on many aspects in the economic and social operation.In the knowledge economy,services have developed dramatically.So human capital has played a more important role.The demand for human capital will increase drastically in the future.This paper discusses the movement of labor's share of income in view of human capital.The paper reviews the relevant research on labor's share of income,human capital and the relationship between them.Besides,this paper summarizes the theories about factor income distribution.On the basis of the above,this paper discusses the effects of human capital on labor's share of income theoretically.Theoretical analysis shows that the value of elasticity of factor substitution determines the effect direction of human capital accumulation on labor's share of income.Taking into consideration the services as the developmental direction of Chinese economy,this paper calculates the human capital stock and the labor's share of income of 13 Chinese service industries during the period 2003-2012.Then we compare the results with the situation of the whole country.The situation of the human capital in services conforms to it in all the industries.Human capital stock increases continually and keeps uneven in different industries.However,the situation of the labor's share of income is more complicated.The labor's share of income in services calculated by us is on the rise while experts cannot agree on the trend of it in all the industries since 2004.With panel data models,the paper analyzes the effects of the human capital on the labor's share of income in services empirically.It points out that the human capital has a positive effect on the labor's share of income in services now.After grouping and comparison,the positive effect is more obvious in industries with lower human capital stock or more important role labor has played.Based on the theoretical and empirical analysis,this paper makes three suggestions to increase the labor's share of income in China: first,to improve the secondary education and to increase investment of primary human capital;second,to enhance skills training of labor to promote labor to match with capital effectively;third,to promote the adjustment and the upgrade of industrial structure then to make the transformation of driving force of development from “human dividend” towards “human capital dividend” step by step.