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Technical Progress and the Share of Labor Income

Publication | February 2017
Technical Progress and the Share of Labor Income

Most technical progress in the People's Republic of China has been capital biased, leading to greater inequality.

Changes in the labor share of national income affect inequality. We investigate the relationship between the labor share and technical progress, based on provincial data from the People’s Republic of China (PRC) from 1978 to 2012. Our results show that technical progress in the PRC had been mostly capital biased, contributing to the fast rises in income inequality in the PRC. However, the employment proportion of state-owned enterprises seems to have played a role in offsetting this negative effect, helping contain inequality. In recent years, both effects have become more significant and larger in absolute terms.

WORKING PAPER NO: 672