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Sectoral wage share and its decomposition in China

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  • Tanadej Vechsuruck

Abstract

This paper investigates sectoral contributions to the trend of national wage share, or the labor income share, during 2000–2014 in China. I apply the logarithmic mean Divisia index (LMDI) decomposition, the method widely used in energy studies, to decompose the trend of the wage share. At a sectoral level, with rapid structural transformation, structural change negatively impacted the wage share through the between-sector effect – the structural and price effects – mainly from agriculture. This result confirms Arthur Lewis’s hypothesis that structural transformation has a negative contribution to the wage share. At a national level, when the wage share declined before 2008, the between-sector effect was as significant as the within-sector effect – the wage and productivity effects. After 2008, the within-sector effect directed the increasing wage share trend. This implies that although structural transformation matters to the wage share in a large developing country like China, a wage-productivity nexus has been more influential and determined the increasing trend of the wage share since 2008.

Suggested Citation

  • Tanadej Vechsuruck, 2023. "Sectoral wage share and its decomposition in China," International Review of Applied Economics, Taylor & Francis Journals, vol. 37(1), pages 50-75, January.
    • Handle: RePEc:taf:irapec:v:37:y:2023:i:1:p:50-75
    DOI: 10.1080/02692171.2022.2117281
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