Determinant of Labor Income with Policy and Institutional Factors - Innovative Management in Information and Production - page 104

Determinant of Labor Income with Policy
and Institutional Factors

Bing Xu, Fan Zhang, and Qiuqin He

Abstract The identification of determinant and mechanism on labor income is a
key to supervision labor income share. In this paper, we find that labor income
depends not only on the production factors but also on the institutional and policy
factors using nonparametric variable detection method. With the institutional and
policy factors, determinants are constraint more than just promotion on influ-
encing essentially the labor income, and mechanism is transition between linear
and nonlinear in China during 1983-2009. As the results, we explain why the
contradictory results about technological progress, trade, and industry structure are
or not the determinant of labor income and provide decision support empirically on
the institution design and policy implementation of labor income.

Keywords Labor income share ￿ Nonparametric variable detection ￿ Determi-
nant ￿ Institution design and policy implementation

1 Introduction

The past 30 years witnessed a great change in China's economy since China
made the reform and opening-up into practice. However, the labor income share
is decreasing persistently with the rapid development of China, and the trend of
decreasing was even more dramatic in the recent years, which is not in accordance
with China's rapid growing. China's labor income share is only a little bit higher
than the Latin American countries whose income distribution is unbalanced. So it is
meaningful to identify the determinant of the labor income share and its mechanism.