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Explaining the decline of China's labor share: A wide replication of Oberfield and Raval (2021)

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  • Hong Yang
  • Wen Zhang

Abstract

China's labor share has declined since late 1990s. Using the methodology developed by Oberfield and Raval, this paper estimates China's aggregate capital‐labor elasticity of substitution, leveraging the estimated micro‐level elasticities. The findings indicate that China's aggregate capital‐labor elasticity falls within the range of 0.9 to 1. Utilizing this estimated aggregate elasticity for labor share decomposition, we find that the bias of technical change emerges as the predominant factor driving the decline in labor share.

Suggested Citation

  • Hong Yang & Wen Zhang, 2024. "Explaining the decline of China's labor share: A wide replication of Oberfield and Raval (2021)," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 39(6), pages 1190-1197, September.
    • Handle: RePEc:wly:japmet:v:39:y:2024:i:6:p:1190-1197
    DOI: 10.1002/jae.3082
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    References listed on IDEAS

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    1. 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.
    2. Ezra Oberfield & Devesh Raval, 2021. "Micro Data and Macro Technology," Econometrica, Econometric Society, vol. 89(2), pages 703-732, March.
    3. Philippe Aghion & Jing Cai & Mathias Dewatripont & Luosha Du & Ann Harrison & Patrick Legros, 2022. "Industrial Policy and Competition," World Scientific Book Chapters, in: Globalization, Firms, and Workers, chapter 15, pages 349-380, World Scientific Publishing Co. Pte. Ltd..
    4. Loren Brandt & Johannes Van Biesebroeck & Luhang Wang & Yifan Zhang, 2017. "WTO Accession and Performance of Chinese Manufacturing Firms," American Economic Review, American Economic Association, vol. 107(9), pages 2784-2820, September.
    5. Li, Bing & Liu, Chang & Sun, Stephen Teng, 2021. "Do corporate income tax cuts decrease labor share? Regression discontinuity evidence from China," Journal of Development Economics, Elsevier, vol. 150(C).
    6. Paul Beaudry & David A. Green & Benjamin Sand, 2012. "Does Industrial Composition Matter for Wages? A Test of Search and Bargaining Theory," Econometrica, Econometric Society, vol. 80(3), pages 1063-1104, May.
    7. BAI, Chong-En & QIAN, Zhenjie, 2010. "The factor income distribution in China: 1978-2007," China Economic Review, Elsevier, vol. 21(4), pages 650-670, December.
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