Does Industrial Policy Increase Labor Income Share?

Empirical Evidence from Local Five-Year Plans

Abstract

Since the reform and opening-up, our national economy has achieved tremendous success. However, addressing the issue of declining labor income share is an urgent requirement for achieving high-quality economic development in China. This study empirically examines the impact of industrial policies on the labor income share using data from all A-share listed companies from 2001 to 2020. It offers a certain direction on how to enhance labor income shares: the government could intensify the implementation of industrial policies to further increase the labor income shares of enterprises. The research findings demonstrate that industrial policies significantly promote an increase in labor income shares, with firm performance playing a positive mediating role in the impact of industrial policies. Furthermore, by conducting heterogeneity analysis, this study concludes that the influence of industrial policies on labor income shares in non-state-owned enterprises is notably higher than in state-owned ones. This might be due to the more challenging financing constraints and other conditions faced by non-state-owned enterprises compared to state-owned ones, suggesting that the effectiveness of industrial policies in increasing labor income shares is more pronounced in non-state-owned enterprises. These conclusions can serve as a theoretical basis for China's industrial policy formulation.