Financial Geography Accessibility and Labor Income Share: From the Perspectives of Financing Costs and Human Capital Structure
LI Chaoqian, SHEN Yue, YAO Shujie, AN Lei
School of Economics and Finance, Xi'an Jiaotong University; School of Economics and Business Administration, Chongqing University; Li Anmin Institute of Economic Research, Liaoning University
Summary:
As socialism with Chinese characteristics enters a new era, the principal conflict facing Chinese society is between unbalanced and inadequate development and people's ever-growing desire for a better life. The Fourteenth Five-Year Plan explicitly states the need to “increase the proportion of labor compensation in initial distribution, improve the wage system, and establish a sound mechanism for reasonable wage growth,” which means that increasing the share of labor income has become an important policy direction for China to optimize the pattern of income distribution and ease social conflict. In this context, exploring the determinants of the labor income share and the mechanism driving an increase in the proportion of labor remuneration in the income distribution system has great theoretical significance and policy value. It is well known that the labor income share measures the proportion of labor remuneration to national income, and thus, to a great extent, the labor income share determines the basic income distribution pattern of an economy. Numerous studies explore the factors influencing the share of labor income. Most focus on macro-economic factors, such as economic and industrial structure changes and transformations, technological progress, economic fluctuations, and globalization. Some studies examine micro-economic factors, such as labor unions, workers' bargaining power, and firm characteristics, including risk-taking behavior and tax burdens. In recent years, the impact of financial markets, such as margin trading and short selling (rong zi rong quan) and the Shanghai-Hong Kong stock exchange connections (hu gang tong), on the labor income share are attracting increasing attention. However, few studies examine the impact of commercial banks—the traditional financial sector—on the distribution of the labor/capital income share. Based on Chinese data on industrial enterprises for the 1998-2007 period and listed companies for the 2007-2021 period, this paper addresses a gap in the literature by studying a particular aspect of the commercial banking sector, namely the impact of financial geographic accessibility on the labor income share. Using the number of surrounding bank branches to measure financial geographic accessibility, this paper examines the impact of financial geographic accessibility on the labor income share and its mechanisms. The empirical results show that increased financial geographic accessibility raises the labor income share. Reduced financing costs and improvements in the human capital structure are two important channels that transmit the impact of financial geography accessibility to the labor income share. Specifically, an increase in financial geography accessibility reduces firms' financing costs, which encourages firms to increase capital input and hire more skilled laborers, and reduce their employment of unskilled laborers. The increasing share of skilled laborers in employment dominates the labor income share changes. In addition, the impact of financial geographic accessibility on the labor income share shows obvious heterogeneity due to the differences of firm characteristics, industry characteristics, and regional financial development levels. The main contributions of this paper are as follows. First, we use the spatial distribution data of bank branches around firms to measure financial geographic accessibility. From the perspective of banking sector expansion, this paper represents an important supplement to the research on how financial development affects the labor income share. Second, it expands the mechanisms by which the financial sector influences income distribution from the perspectives of financing costs and human capital structure change. Whereas the literature is limited to analyses of the financial supply side, this paper proposes that the difference in the elasticity of substitution between capital, skilled labor, and unskilled labor affects the respective relative demands for these components and thus forms a key constraint on the relationship between financial accessibility and the labor income share. Thus, this paper provides a new perspective for understanding the relationship between financial development and factor income distribution. Third, based on micro-level empirical evidence, this paper elucidates the U-shaped evolution of the macro-level labor income share. This paper holds that important reasons for this U-shaped trend of the labor income share in China are the improvement of resource allocation efficiency in the financial sector, an advanced human capital structure, and the difference in the elasticity of substitution between capital and “two kinds” (unskilled and skilled) of labor, and the time-varying nature of these differences in the elasticity of substitution.
李朝前, 沈悦, 姚树洁, 安磊. 金融地理可及性与劳动收入份额——基于融资成本与人力资本结构视角[J]. 金融研究, 2023, 519(9): 150-167.
LI Chaoqian, SHEN Yue, YAO Shujie, AN Lei. Financial Geography Accessibility and Labor Income Share: From the Perspectives of Financing Costs and Human Capital Structure. Journal of Financial Research, 2023, 519(9): 150-167.
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