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| Financial Geography Expansion and the Changes in Labor Income Share of Chinese Enterprises |
| BIAN Yuanchao, BAI Junhong
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| School of Business, Nanjing Normal University |
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Abstract The share of labor income reflects the extent to which workers share the fruits of economic development and the fairness of income distribution. However, China's share of labor income experienced a continuous decline from 1990 to the first decade of the 21st century. Moreover, compared with some developed countries, China's share of labor income remains at a relatively low level. Therefore, to achieve China's goal of common prosperity, it is necessary to clearly understand the key factors affecting the share of labor income, and to identify the paths for increasing labor remuneration and its proportion in primary distribution for workers.In previous studies, scholars have examined the relationship between the development of financial system and the labor income share of enterprises from the perspective of financing constraints. They believed that accelerating financial development can help to mitigate financing constraints for enterprises and increase their share of labor income. However, these studies neglect the fact that the remission of financing constraints brought about by financial development will lead to an asymmetric differentiation in the rate of increase in the input scale of production factors, which will affect the relative factor endowment of enterprises. At this point, even though the labor factors and their absolute income level of the enterprise may show an upward trend, its share in the overall factor income is still decreasing. Moreover, the spatial distribution of financial resources is not completely homogeneous, and there are differences in the financial environment and supply of financial resources faced by different micro enterprises. This is also a problem that has been overlooked in previous research.Therefore, this paper focuses on examining the impact of financial geographic expansion, represented by the spatial expansion of bank branches, on the labor income share of enterprises. This paper discusses the mechanism of financial geographical expansion affecting the labor income share of enterprises from the perspective of relative factor endowment changes, and empirically tests the effect of financial geographical expansion on the labor income share of enterprises by identifying the distribution of various bank branches on specific spatial scales around China's micro-industrial enterprises. Research has found that the number of bank branches within 5km and 10km of an enterprise has a significant negative impact on the labor income share of the enterprise, that is, the expansion of financial geography is not conducive to the improvement of labor income share, and this effect has a significant spatial attenuation feature. The expansion of financial geography has increased the capital-labor ratio of enterprises, which has a negative impact on the share of labor income. Furthermore, the geographical expansion of policy banks and foreign banks has no significant effect on the labor income share of enterprises. The geographical expansion of state-owned and joint-stock commercial banks and urban commercial banks has inhibited the increase of labor income share of enterprises. The expansion of financial geography has significantly suppressed the increase in labor income share of private enterprises, small and medium-sized enterprises, and capital-intensive enterprises, and the impact on state-owned enterprises, large enterprises, and labor-intensive enterprises is not significant.The conclusion of this paper has important practical significance for us to further scientifically examine the micro-effects of China's financial geographic expansion, optimize the policy orientation of financial system development, and guide enterprises to accelerate the transformation and upgrading of factors. On the one hand, although our research has found that financial geographic expansion has a negative impact on the increase of labor income share of enterprises, this does not mean that financial expansion is superfluous but that the development of the financial system should be scientifically guided. In recent years, with the deepening of the financial supply-side structural reform, China's financial expansion has entered a stable development track, and the expansion speed of various bank branches and outlets has significantly decreased. This to certain extent indicates that the current financial development in China needs to focus on reserve optimization, and financial institutions should pay more attention to the rational and efficient allocation of financial resources in the process of serving the real economy. They should not only focus on the expansion or contraction of scale, but also allocate more high-quality resources to enterprises with higher efficiency and higher technical level, so as to fully release the function of financial services to the real economy. On the other hand, one of the reasons why financial geographical expansion suppresses the share of labor income in enterprises is that they have adopted more capital to replace labor and the deeper reason is that the marginal output of labor factors in enterprises is relatively low. Therefore, the future increase in China's share of labor income requires a strong increase in the proportion of skilled labor in enterprises, optimization of the allocation of capital and labor factors, more reliance on skilled labor to promote development, and acceleration of skill-oriented technological progress. In particular, the increase of the labor income share also needs the guidance of high-quality transformation of private enterprises and small and medium-sized enterprises, improving their factor structure and technological innovation, and reducing the erosion of profit on wages.
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Received: 01 June 2023
Published: 10 September 2024
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