Summary:
Since the global financial crisis, the link between accommodative monetary policy and income and wealth inequality has drawn extensive attention from both academia and policymakers. Beyond conventional aggregate economic effects, monetary policy may generate complex structural effects, for example, by influencing the relative use of capital and labor in the production process and thereby affecting the distribution of national income between these two factors of production. Globally, labor is generally more evenly distributed across households than capital, so a higher share of national income accruing to labor implies a narrowing of income disparities. In China, property income accounts for a very low share of residents’ total income while wage income is dominant. Thus, a rise in the labor income share carries important implications for reducing income inequality, enhancing people's sense of gain, and boosting consumption and domestic demand. At present, the external environment is becoming more complex and severe. To better consolidate the foundation for sustained economic recovery, China's monetary policy stance has shifted to “moderately accommodative.” The word “moderately” fully reflects the dynamic balance between counter-cyclical adjustment and cross-cyclical adjustment, and between stabilizing growth and preventing the entrenchment of structural problems under the macroeconomic governance system with Chinese characteristics. Against this backdrop, an in-depth study of the impact of expansionary monetary policy shocks on the labor income share is of great significance for understanding the potential structural shortcomings of monetary policy and for crafting a well-coordinated policy mix. This paper studies the impact of monetary policy on the labor income share through the lens of dual frictions in the labor market and the financial market. We first construct a dynamic stochastic general equilibrium model incorporating both labor market and financial market frictions. The simulation results show that labor adjustment frictions, and the resulting difference in adjustment speeds between labor and investment, play a key role in how monetary policy affects the labor income share. In the absence of labor adjustment frictions, an expansionary monetary policy shock causes labor to adjust faster than investment, thereby raising the labor income share. Once labor adjustment frictions are introduced, labor adjusts more slowly than investment, thereby reducing the labor income share. Moreover, the magnitude of the impact of monetary policy on firms’ labor income share is also related to the degree of financial market frictions they face. Building on the theoretical model, we use data on China's non-financial A-share listed firms from 2007 to 2023, identify monetary policy shocks with a high-frequency identification approach, and employ local projection methods to estimate the dynamic impact of monetary policy shocks on firms’ labor share. The empirical evidence shows: First, expansionary monetary policy shocks reduce firms’ labor income share. Second, the magnitude of this effect is related to the labor adjustment costs firms face, and after an expansionary monetary policy shock, labor adjusts more slowly than investment. Third, the negative effect of monetary policy shocks on firms’ labor income share is more pronounced for firms facing more severe credit constraints. These empirical findings support the theoretical model that simultaneously incorporates labor adjustment costs and financial frictions. Compared with the existing literature, this paper makes three contributions. First, it constructs a theoretical framework in which monetary policy affects the labor income share through its impact on firms’ labor hiring and investment decisions, and examines how labor market frictions and financial frictions shape the distributional effects of monetary policy. Second, it provides dynamic empirical evidence on the impact of monetary policy on firms’ labor income share, enriching micro-level evidence on the distributional consequences of monetary policy. Third, it empirically tests the mechanisms proposed in the theoretical model from the perspectives of labor market frictions and financial frictions, thus providing empirical support for the model specification. Based on the theoretical analysis and empirical findings of this paper, we propose the following three policy implications. First, we should maintain a moderately accommodative monetary policy stance, keep monetary policy properly calibrated, avoid broad-based flood-style easing. Monetary policy should actively perform its countercyclical adjustment function to provide a sound monetary and financial environment for economic stabilization and recovery; at the same time, it should prevent easing that is too large in scale or too prolonged from entrenching structural distortions. Second, we should promote the coordinated efforts of monetary policy and structural policies, such as fiscal, employment, and distribution policies, to forge an effective policy mix. The strength of monetary policy lies in its aggregate adjustment effects. This necessitates that, alongside the implementation of accommodative monetary policy, fiscal and tax policies be tilted toward front-line workers and low- and middle-income groups. Third, we should increase policy support for private enterprises and small and medium-sized enterprises (SMEs). Recruitment subsidies for private enterprises and SMEs hiring recent graduates should be increased, thereby providing stronger incentives for these firms to create and expand employment opportunities. Meanwhile, vocational skills training and occupational transition support should be improved to enhance workers’ adaptability to emerging technologies and advanced equipment, so as to achieve better coordination among capital deepening, employment expansion, and labor income growth.
范志勇, 安戈洋, 杨怡璇. 中国货币政策的要素收入分配效应研究——基于劳动力市场与金融市场双重摩擦视角[J]. 金融研究, 2026, 553(7): 20-38.
FAN Zhiyong, AN Geyang, YANG Yixuan. The Factor Income Distribution Effects of China's Monetary Policy: A Dual-Friction Perspective on the Labor and Financial Markets. Journal of Financial Research, 2026, 553(7): 20-38.
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