Low Labor Share in GDP Holds Back Economic Development

    Abstract: The declining share of labor compensation in China’s GDP has raised intense public concern. Using statistics since 1978, this research paper examines, in detail, the changing patterns of labor compensation since reform and opening-up. Following international practices, this paper has adjusted China’s labor compensation statistics. The results show that, in contrast to a significant drop in the share of labor compensation in GDP before making an adjustment, the adjusted share has actually remained stable for the most part after the late 1970s. There has been no discernable fall until the last several years. The real problem in China’s functional distribution of national income since the late 1970s has not been the declining share of labor compensation in GDP. Actually, the share has always remained consistently low. It can be characterized as being “stable at a low level on a long-term basis”. How to increase the labor share, which is in the interest of the average worker, is a major question that must be addressed in China’s future economic development.
    Key Words: functional distribution of national income, labor share, stable at a low level.nd
    ( in China Economist,2011 Issue 2 )