IDEAS home Printed from https://ideas.repec.org/a/eee/soceps/v97y2025ics0038012124003033.html
   My bibliography  Save this article

Social insurance contributions and labor income share—Evidence from China's Social Insurance Law

Author

Listed:
  • Cui, Yadong
  • Liang, Jun
  • Wang, Wei

Abstract

This paper analyzes the impact of social insurance contributions on the labor income share and its mechanisms, based on the exogenous policy shock of the implementation of the China's Social Insurance Law, by constructing a theoretical model and using the DID method. The results show that the increase in the social insurance contribution resulting from the implementation of the Law significantly increased the capital-labor ratio of firms, which in turn increased the labor income share. After the decomposition of the labor income share, it is found that the increase in the labor income share due to the increase in the level of social insurance contributions is attributable to the increase in per capita labor compensation exceeding the increase in labor productivity. After the implementation of the Law, the labor income share increased more for firms that were subject to stricter tax control, stronger labor protection, more difficult cost shifting, smaller elasticity of factor substitution, and weaker degree of financing constraints. This study better explains the phenomenon of China's labor income share rebound, provides empirical evidence from developing countries to increase the labor income share, and emphasizes the importance of protecting workers' social insurance rights and interests and regulating firms' social insurance contribution behavior to increase the labor income share, which helps to deepen the understanding of the role of social insurance system reform in regulating income distribution.

Suggested Citation

  • Cui, Yadong & Liang, Jun & Wang, Wei, 2025. "Social insurance contributions and labor income share—Evidence from China's Social Insurance Law," Socio-Economic Planning Sciences, Elsevier, vol. 97(C).
    • Handle: RePEc:eee:soceps:v:97:y:2025:i:c:s0038012124003033
    DOI: 10.1016/j.seps.2024.102103
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0038012124003033
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.seps.2024.102103?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Olivier Blanchard & Francesco Giavazzi, 2003. "Macroeconomic Effects of Regulation and Deregulation in Goods and Labor Markets," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(3), pages 879-907.
    2. Arjun Jayadev & Amay Narayan, 2020. "The Evolution of India's Industrial Labour Share and its Correlates," Development and Change, International Institute of Social Studies, vol. 51(4), pages 998-1017, July.
    3. Matthew Serfling, 2016. "Firing Costs and Capital Structure Decisions," Journal of Finance, American Finance Association, vol. 71(5), pages 2239-2286, October.
    4. Brent Neiman, 2014. "The Global Decline of the Labor Share," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(1), pages 61-103.
    5. Tomi Kyyrä & Mika Maliranta, 2008. "The micro-level dynamics of declining labour share: lessons from the Finnish great leap ," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 17(6), pages 1147-1172, December.
    6. Gruber, Jonathan, 1997. "The Incidence of Payroll Taxation: Evidence from Chile," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages 72-101, July.
    7. Bruno Decreuse & Paul Maarek, 2015. "FDI and the Labor Share in Developing Countries : A Theory and Some Evidence," Annals of Economics and Statistics, GENES, issue 119-120, pages 289-319.
    8. Takafumi Sasaki, 2015. "The Effects of Liquidity Shocks on Corporate Investments and Cash Holdings: Evidence from Actuarial Pension Gains/Losses," Financial Management, Financial Management Association International, vol. 44(3), pages 685-707, September.
    9. Jonathan B. Berk & Richard Stanton & Josef Zechner, 2010. "Human Capital, Bankruptcy, and Capital Structure," Journal of Finance, American Finance Association, vol. 65(3), pages 891-926, June.
    10. Wu, Huiwan, 2024. "How does enforcement of social insurance law minimize income gaps within firms: From a perspective of worker bargaining power," Finance Research Letters, Elsevier, vol. 62(PB).
    11. Viral V. Acharya & Ramin P. Baghai & Krishnamurthy V. Subramanian, 2014. "Wrongful Discharge Laws and Innovation," The Review of Financial Studies, Society for Financial Studies, vol. 27(1), pages 301-346, January.
    12. repec:hal:pseose:halshs-01157487 is not listed on IDEAS
    13. Stephanie Seguino & Elissa Braunstein, 2019. "The Costs of Exclusion: Gender Job Segregation, Structural Change and the Labour Share of Income," Development and Change, International Institute of Social Studies, vol. 50(4), pages 976-1008, July.
    14. Daron Acemoglu & Pascual Restrepo, 2018. "The Race between Man and Machine: Implications of Technology for Growth, Factor Shares, and Employment," American Economic Review, American Economic Association, vol. 108(6), pages 1488-1542, June.
    15. Zhigang Li & Mingqin Wu, 2013. "Estimating The Incidences Of The Recent Pension Reform In China: Evidence From 100,000 Manufacturers," Contemporary Economic Policy, Western Economic Association International, vol. 31(2), pages 332-344, April.
    16. Daron Acemoglu, 2002. "Directed Technical Change," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(4), pages 781-809.
    17. Chen, Chuanglian & Wang, Shudan & Yao, Shujie & Lin, Yuting, 2023. "Does digital transformation increase the labor income share? From a perspective of resources reallocation," Economic Modelling, Elsevier, vol. 128(C).
    18. Liu, Guanchun & Liu, Yuanyuan & Zhang, Chengsi & Zhu, Yueteng, 2021. "Social insurance law and corporate financing decisions in China," Journal of Economic Behavior & Organization, Elsevier, vol. 190(C), pages 816-837.
    19. Gao, Yihong & Gao, Jiayan, 2023. "Employee protection and trade credit: Learning from China's social insurance law," Economic Modelling, Elsevier, vol. 127(C).
    20. repec:oup:qjecon:v:129:y:2013:i:1:p:61-103 is not listed on IDEAS
    21. Ms. Florence Jaumotte & Ms. Irina Tytell, 2007. "How Has The Globalization of Labor Affected the Labor Income Share in Advanced Countries?," IMF Working Papers 2007/298, International Monetary Fund.
    22. Youssef Benzarti & Jarkko Harju, 2021. "Using Payroll Tax Variation to Unpack the Black Box of Firm-Level Production," Journal of the European Economic Association, European Economic Association, vol. 19(5), pages 2737-2764.
    23. Huang, Yuhong & Gao, Yajia, 2023. "Labor protection and the digital transformation of enterprises: Empirical evidence from China's social insurance law," Finance Research Letters, Elsevier, vol. 57(C).
    24. Thomas Piketty, 2015. "About Capital in the Twenty-First Century," American Economic Review, American Economic Association, vol. 105(5), pages 48-53, May.
    25. Azmat, Ghazala & Manning, Alan & Van Reenen, John, 2007. "Privatization, entry regulation and the decline of labor's share of GDP: a cross-country analysis of the network industries," LSE Research Online Documents on Economics 4552, London School of Economics and Political Science, LSE Library.
    26. Ruan, Peiheng & Wang, Shuai & Yun, Feng, 2024. "Social insurance law and corporate performance in China," International Review of Economics & Finance, Elsevier, vol. 94(C).
    27. Zuleta, Hernando & Young, Andrew T., 2013. "Labor shares in a model of induced innovation," Structural Change and Economic Dynamics, Elsevier, vol. 24(C), pages 112-122.
    28. Deng, Lixing & Lai, Shaojie & Liu, Shiang & Pu, Xiaoling, 2022. "Social insurance premiums and corporate cash holdings: Evidence from social insurance law in China," Economic Modelling, Elsevier, vol. 114(C).
    29. Emilie Daudey & Cecilia Garcia-Penalosa, 2007. "The personal and the factor distributions of income in a cross-section of countries," Journal of Development Studies, Taylor & Francis Journals, vol. 43(5), pages 812-829.
    30. Yao, Wenyun & Lu, Feier & Wang, Yuting & Song, Zilong, 2023. "Social insurance contributions and firms' debt concentration choice: A quasi-natural experiment based on the implementation of China's social insurance law," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    31. John (Jianqiu) Bai & Douglas Fairhurst & Matthew Serfling & David Denis, 2020. "Employment Protection, Investment, and Firm Growth," The Review of Financial Studies, Society for Financial Studies, vol. 33(2), pages 644-688.
    32. Si, Xu & Liu, Yulin & Wang, Jun, 2023. "Dialect diversity and labor income share in China," Economic Systems, Elsevier, vol. 47(4).
    33. Jin, Gang & Zhang, Jiwen & Ye, Yongwei & Yao, Shiqi & Song, Jingxiang, 2024. "Social insurance law and firm markup in China," Economic Modelling, Elsevier, vol. 132(C).
    34. DeVaro, Jed & Maxwell, Nan L., 2014. "The elusive wage-benefit trade-off: The case of employer-provided health insurance," International Journal of Industrial Organization, Elsevier, vol. 37(C), pages 23-37.
    35. Takahashi, Harutaka & Le Riche, Antoine, 2021. "A dynamic theory of the declining aggregated labor income share: Intangible capital vs. tangible capital," Research in Economics, Elsevier, vol. 75(1), pages 104-118.
    36. Ahsan, Reshad N. & Mitra, Devashish, 2014. "Trade liberalization and labor's slice of the pie: Evidence from Indian firms," Journal of Development Economics, Elsevier, vol. 108(C), pages 1-16.
    37. Philip Arestis & Jesús Ferreiro & Carmen Gómez, 2020. "Employment Protection Legislation and Labour Income Shares in Europe," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 67(3), pages 291-308.
    38. Chen, Zhibin & Xu, Yibin & Tian, Zongtao & Meng, Xu, 2022. "The Impact of Social Insurance Law on Corporate Innovation: Evidence from a quasi-natural experiment," Economic Modelling, Elsevier, vol. 111(C).
    39. Hur, Joonyoung, 2021. "Labor income share and economic fluctuations: A sign-restricted VAR approach," Economic Modelling, Elsevier, vol. 102(C).
    40. Yang, Guang-Zhao & Si, Deng-Kui & Ning, Guang-Jie, 2023. "Does digital transformation reduce the labor income share in enterprises?," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 1526-1538.
    41. Lv, Wendai & Ma, Wenhao & Yang, Xiandong, 2022. "Does social security policy matter for corporate social responsibility? Evidence from a quasi-natural experiment in China," Economic Modelling, Elsevier, vol. 116(C).
    42. Summers, Lawrence H, 1989. "Some Simple Economics of Mandated Benefits," American Economic Review, American Economic Association, vol. 79(2), pages 177-183, May.
    43. Li, Rui & Zhu, Zhikai & Wang, Xiaoyan, 2023. "Pension insurance contributions and ESG performance: Evidence from China," Finance Research Letters, Elsevier, vol. 58(PD).
    44. Cauvel, Michael & Pacitti, Aaron, 2022. "Bargaining power, structural change, and the falling U.S. labor share," Structural Change and Economic Dynamics, Elsevier, vol. 60(C), pages 512-530.
    45. Zhang, Xun & Wan, Guanghua & Wang, Xu, 2017. "Road infrastructure and the share of labor income: Evidence from China’s manufacturing sector," Economic Systems, Elsevier, vol. 41(4), pages 513-523.
    46. Nielsen, Ingrid & Smyth, Russell, 2008. "Who bears the burden of employer compliance with social security contributions? Evidence from Chinese firm level data," China Economic Review, Elsevier, vol. 19(2), pages 230-244, June.
    47. Xiao, De & Yu, Fan & Guo, Chenhao, 2023. "The impact of China's pilot carbon ETS on the labor income share: Based on an empirical method of combining PSM with staggered DID," Energy Economics, Elsevier, vol. 124(C).
    48. Li, Jianqiang & Hu, Ailian & Chen, Wanyi & Fang, Shiyao, 2024. "Social security fee reduction, industrial robots, and labor income share," Journal of Asian Economics, Elsevier, vol. 94(C).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ruan, Peiheng & Wang, Shuai & Yun, Feng, 2024. "Social insurance law and corporate performance in China," International Review of Economics & Finance, Elsevier, vol. 94(C).
    2. Jin, Gang & Zhang, Jiwen & Ye, Yongwei & Yao, Shiqi & Song, Jingxiang, 2024. "Social insurance law and firm markup in China," Economic Modelling, Elsevier, vol. 132(C).
    3. Wenjing Bi & Yifei Li & Xiaotao Zhang & Tenglong Zhong, 2024. "Labor protection and enterprise digital transformation: A quasi‐natural experiment based on the enforcement of Social Insurance Law in China," Economics and Politics, Wiley Blackwell, vol. 36(2), pages 708-733, July.
    4. Yao, Wenyun & Lu, Feier & Wang, Yuting & Song, Zilong, 2023. "Social insurance contributions and firms' debt concentration choice: A quasi-natural experiment based on the implementation of China's social insurance law," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    5. Yu, Jingyuan & Zhao, Heyun & Mo, Longjiong, 2023. "Can social insurance contributions boost labor share?—Evidence from China’s social insurance law," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 701-715.
    6. Bu, Xiaoning & Zhang, Yuanhao & Xing, Yafei, 2024. "Joint governance corporate alliance and the share of labour income: Evidence from China's private firms," Economic Modelling, Elsevier, vol. 139(C).
    7. Liu, Guanchun & Liu, Yuanyuan & Zhang, Chengsi & Zhu, Yueteng, 2021. "Social insurance law and corporate financing decisions in China," Journal of Economic Behavior & Organization, Elsevier, vol. 190(C), pages 816-837.
    8. Corbellini, Aldo & Magnani, Marco & Morelli, Gianluca, 2021. "Labor market analysis through transformations and robust multivariate models," Socio-Economic Planning Sciences, Elsevier, vol. 73(C).
    9. Nai-Chun Wang & Deng-Kui Si & Chun-Feng Dong, 2022. "Social Insurance Burden and Corporate Environmental Performance: Evidence from China," Sustainability, MDPI, vol. 14(19), pages 1-22, September.
    10. Deng, Lixing & Lai, Shaojie & Liu, Shiang & Pu, Xiaoling, 2022. "Social insurance premiums and corporate cash holdings: Evidence from social insurance law in China," Economic Modelling, Elsevier, vol. 114(C).
    11. Bom, Pedro R.D. & Erauskin, Iñaki, 2022. "Productive government investment and the labor share," International Review of Economics & Finance, Elsevier, vol. 82(C), pages 347-363.
    12. Gao, Yihong & Gao, Jiayan, 2023. "Employee protection and trade credit: Learning from China's social insurance law," Economic Modelling, Elsevier, vol. 127(C).
    13. Ibarra, Carlos A. & Ros, Jaime, 2019. "The decline of the labor income share in Mexico, 1990–2015," World Development, Elsevier, vol. 122(C), pages 570-584.
    14. Luciano BOGGIO & Vincenzo DALL’AGLIO & Marco MAGNANI, 2010. "On Labour Shares in Recent Decades: A Survey," Rivista Internazionale di Scienze Sociali, Vita e Pensiero, Pubblicazioni dell'Universita' Cattolica del Sacro Cuore, vol. 118(3), pages 283-333.
    15. Saumik Paul & Yoko Oishi, 2018. "A Primer on the Drivers of Labor Income Share," Working Papers id:12948, eSocialSciences.
    16. Kyoji Fukao & Cristiano Perugini, 2021. "The Long‐Run Dynamics of the Labor Share in Japan," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 67(2), pages 445-480, June.
    17. Jiang, Jiaoliang & Chen, Yulin, 2021. "How does labor protection influence corporate risk-taking? Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).
    18. Onur Özdemir, 2020. "The handicap for enhanced solidarity across advanced economies: The greater the economic openness higher the unequal distribution of income," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 91(4), pages 585-632, December.
    19. Si, Deng-Kui & Meng, Mingyue & Wang, Jiaming & Zhou, Fuyou, 2024. "Does capital market liberalization increase corporate labor income share? Evidence from China," Economic Modelling, Elsevier, vol. 141(C).
    20. Matteo G. Richiardi & Luis Valenzuela, 2024. "Firm heterogeneity and the aggregate labour share," LABOUR, CEIS, vol. 38(1), pages 66-101, March.

    More about this item

    Keywords

    Social Insurance Law; Labor income share; Social insurance contributions;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • P35 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Public Finance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:soceps:v:97:y:2025:i:c:s0038012124003033. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/seps .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.