A Study On The Impact Of Factor Elasticity Of Substitution,Technological Progress Bias On Labor Income Share In China

Since the reform and opening up in the 1970 s,China’s economy has been developing for decades,and the total economic volume has been increasing year by year,but the corresponding share of labor income has not increased with the annual growth of the total economic volume,but has been hovering at a low level for a long time.For most residents in China,labor income accounts for a large share of their total income,and some even derive their entire income from labor income.Therefore,increasing the share of labor income will,to a certain extent,improve the income distribution pattern of Chinese residents,raise the income of Chinese residents,and narrow the gap between the rich and the poor in society.At the same time,the labor income share reflects the overall situation of Chinese residents sharing the fruits of China’s economic development and is an important indicator of the degree of common wealth in China,and the labor income share is more important for economic development.It is of great practical significance to explore the reasons why the labor income share has been hovering at a low level for a long time and to increase the share of labor income in the primary income distribution of Chinese residents.In order to explore the reasons why the labor income share hovers at a low level for a long time,this study,based on extensive reading of the literature on the factors influencing the labor income share,firstly,elaborates the basic concepts of factor substitution elasticity,technological progress bias and labor income share,and sorts out the theoretical basis of the influence of factor substitution elasticity on technological progress bias,the theoretical basis of the influence of technological progress bias on the labor income share and the theoretical basis of the influence of factor substitution elasticity on the labor income share in the presence of technological progress bias.Second,using China’s macro data from 1992 to 2020,the factor elasticity of substitution definition method,CES production function and labor income share definition method are used to estimate the factor elasticity of substitution,technological progress bias,and labor income share indicators;and the current situation analysis of China’s factor elasticity of substitution,technological progress bias,and labor income share is conducted,and the analysis finds that the value of capital-labor elasticity of substitution is less than 1 in most years during the sample period,and China’s factor production technology is mainly directed toward the capital factor for technological innovation,and the overall trend of labor income share shows a change pattern of first decreasing and then increasing over time.Third,the relationship between factor elasticity of substitution,technological progress bias and labor income share is analyzed empirically.Finally,based on the relevant findings,we propose countermeasures to improve the labor income share in China.The analysis of the empirical tests leads to the following conclusions:(1)the increase in the factor elasticity of substitution leads to a gradual bias of technological progress toward the capital factor,while the increase in the factor elasticity of substitution in the presence of technological bias conditions leads to a gradual decrease in the share of labor income;(2)Technological progress is biased toward the capital factor in most years of the entire interval period 1993-2020 measured in this paper,leading to an increase in the relative marginal output of capital and labor,and thus a decrease in the share of labor income;(3)Excessive tax burden will make the share of residents’ remuneration lower;(4)The entry of foreign capital will create more jobs for the country’s residents,which will raise the income of the country’s residents and further contribute to the increase in the share of labor income;(5)A lower share of primary industry in the industrial structure leads to a lower share of labor income,and a lower share of secondary industry leads to an increase in the share of labor income,which is consistent with the findings of the existing literature.