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How does labour share respond to risk? Theory and evidence from the Chinese industrial sector

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  • Jingxian ZOU
  • Guangjun SHEN
  • Shen JIA

Abstract

This study discusses the role of firm risk in the declining labour share in China. Based on the model developed by Holmström and Milgrom (1987), the authors demonstrate that lower firm risk can motivate workers to work harder, leading to higher output per worker and average wage. However, increased output will lower the labour share. Using data from the Chinese Industrial Enterprises Database for the period 1998–2007 and the World Bank's Investment Climate Survey 2005, empirical evidence supports this hypothesis and performs robustly across various model specifications and proxies for firm risk, indicating a positive correlation between labour share and firm risk.

Suggested Citation

  • Jingxian ZOU & Guangjun SHEN & Shen JIA, 2020. "How does labour share respond to risk? Theory and evidence from the Chinese industrial sector," International Labour Review, International Labour Organization, vol. 159(2), pages 259-281, June.
    • Handle: RePEc:bla:intlab:v:159:y:2020:i:2:p:259-281
    DOI: 10.1111/ilr.12111
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    References listed on IDEAS

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    1. Qianbin Feng & Lexin Zhao & Mingxue Xu, 2023. "Tax Incentives and Maturity Mismatch between Investment and Financing: Evidence from China," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 31(4), pages 1-36, July.

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