Summary:
Globally, the last four decades have been characterized by a continuous decline in the labor income share, which has attracted the attention of many scholars. However, using a sample of China's listed firms, we observe that China's labor income share did not decline significantly after the 2008 financial crisis and even showed an upward trend. We also observe surges in the rapid deepening of the financialization of nonfinancial firms in China during the same period. Intuitively, we find a positive link between firms' financialization and labor income share after the crisis. This raises the question of whether the newly emerging and rapidly spreading financialization of firms in China may be an important reason for the growth of labor income share after 2010. If so, what is the mechanism？ Is it sustainable？ These are the questions we try to answer. Using a sample of China's listed firms from the 2007 to 2017 period, we investigate the relationship between the financialization of Chinese listed firms and their labor income share. We find that the financialization of Chinese listed firms has a positive effect on their labor share, which is inconsistent with the findings of a negative correlation between the two in studies using samples of firms in developed countries. We argue that the spillover effect of financialization on workers' wages and its inhibition of productivity is the explanation for our results. The results of our mediation analysis are as follows. Financialization has a positive spillover on employees' income (i.e., the profit spillover effect); however, it also inhibits labor productivity (i.e., the technology inhibitory effect). These two channels can help explain the positive relationship between financialization and labor share in China. Our analysis of heterogeneous samples shows that the positive effect of firms' financialization on labor share is especially dominant among firms from areas with higher minimum wage and more skilled workers. Further analysis finds that the classic principal-agent framework fails to explain financialization in China. Instead, the role of financialization in promoting labor share stems from the excess returns in China's financial market. Financialization is a rational choice for firms when there are excess returns in the financial market, but it also damages productivity. Therefore, the positive relationship between financialization and labor share is unsustainable. In the long run, profit-oriented financialization in China may not only damage the actual income of workers but also damage the industrial foundation, and thus it may be referred to as a “sweet poison.” We make three contributions to the literature. First, we extend the research on the relationship between financialization and labor income share to the micro level. Unlike others who have used samples of firms from developed countries, we, focusing on China, propose and identify a “profit spillover” effect and a “technology inhibition” effect of firms' financialization on labor income share. Second, previous studies of firms' financialization have paid insufficient attention to endogeneity problems. In this paper, we try to overcome this problem by using the frontier synthetic instrumental variable method and the event method to confirm the causal relationship between the financialization of firms and labor share. Third, breaking out of the classic principal-agent framework, we identify “another style” of firms financialization, which occurs when there are excess returns in the financial field. This insight not only helps to improve the understanding of firms' financialization but also has important practical value. We conclude that the pulling effect of firms' financialization on China's labor income share is based on the specific condition of excess returns, so it is not only unsustainable, but it may also result in long-term damage. Thus, the economic trend “from the real to the virtual” caused by the rapid development of firms' financialization must be guarded against..
罗明津, 铁瑛. 企业金融化与劳动收入份额变动[J]. 金融研究, 2021, 494(8): 100-118.
LUO Mingjin, TIE Ying. Financialization and Labor Share:Firm-level Evidence from China. Journal of Financial Research, 2021, 494(8): 100-118.
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