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Driving Factors for Decreasing Labor’s Share of National Income in China:Analysis Based on LMDI Method
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TitleDriving Factors for Decreasing Labor’s Share of National Income in China:Analysis Based on LMDI Method  
AuthorWu Kai and Fan Conglai  
OrganizationSchool of Business, Nanjing University; School of Economics, Nanjing Audit University;School of Business, Nanjing University; 
Key WordsLabor’s Share of National Income; Driving Factors; Logarithmic Mean Divisia Index 
AbstractTo explore the driving factors of the change of labor’s share of national income during the economic expansion period in China has theoretical and practical significance for making income distribution policies, narrowing income gap and restoring equity. This paper introduces LMDI (Logarithmic Mean Divisia Index) decomposition method into the field of income distribution, by constructing an analysis framework of LMDI decomposition of labor’s share of national income. This framework avoids the problem of unexplainable residuals by the decomposition method of Solow(1958). Following this decomposition framework, this paper decomposes the labor’s share of national income in China during 1993 and 2011 into four driving factors, such as distribution ratio, income ratio, production efficiency and structure change. Then this paper decomposes the national, four regional, and 31 provincial labor’s share step by step. The results show that: (1) the main driving factors of the declining of national labor’s share are the decreasing of distribution ratio and income ratio. However the contribution of production efficiency and structure change is small. This implies the factor distribution is inclining to capital and the burden of the turnover tax is increasing. Both lead to the declining of national labor’s share. (2) In eastern, middle and western regions, labor’s share shows the same tendency as the national counterpart. However the main driving factor in northeastern region is structure change. (3) There are great discrepancies in provincial region. In addition,this paper provides suggestions for raising the labor’s share in China. 
Serial NumberWP500 
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