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Can social insurance contributions boost labor share?—Evidence from China’s social insurance law

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  • Yu, Jingyuan
  • Zhao, Heyun
  • Mo, Longjiong

Abstract

Improving the factor income distribution is a crucial issue in the field of income inequality. Using large-scale data from China’s National Tax Survey from 2008 to 2016, this paper examines the impact of the implementation of the Social Insurance Law on firms’ labor share and its mechanisms. The results show that the Social Insurance Law significantly reduces firms’ labor share. Although it increases the firms’ social insurance rate and total amount of social insurance contributions, firms respond by reducing the number of employed labors and net wages to mitigate rising labor costs, as well as adopting alternative technological advancement patterns and capital deepening behavior, leading to a reduction in labor share. The weakening effects of Social Insurance Law primarily exist in non-SOEs, and MSEs, and firms faced with higher financial constraints and located in lower judicial quality areas. Our study suggests that stronger social security collection could account for the decline in labor share worldwide.

Suggested Citation

  • Yu, Jingyuan & Zhao, Heyun & Mo, Longjiong, 2023. "Can social insurance contributions boost labor share?—Evidence from China’s social insurance law," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 701-715.
    • Handle: RePEc:eee:ecanpo:v:80:y:2023:i:c:p:701-715
    DOI: 10.1016/j.eap.2023.09.016
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    More about this item

    Keywords

    Social security; Social insurance law; Labor share; Technical progress; Substitution effect;
    All these keywords.

    JEL classification:

    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • P24 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - National Income, Product, and Expenditure; Money; Inflation
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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