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How Does Labor Costs Affect China's Industrialization?

【Authors】
BAI Xuejie, YU Qingrui
【WorkUnit】
Nankai University, 300071.
【Abstract】

Industrialization is the engine of economic growth China's uninterrupted high-speed economic growth depends on promoting the process of industrialization. Based on provincial data of 2003—2015, this paper empirically estimates the impact of labor costs on China's industrialization and examines its working mechanism and path. The results show that the rising labor costs such as wages and social security benefits will lead to China's “de-industrialization”. The impact of rising labor costs on industrialization varies from region to region. Excluding endogenous problems, the conclusion still holds. Further, the results of intermediary effect test show that the rise of labor costs leads to “de-industrialization” by channeling capital away from the real economy into the virtual economy; the rise of manufacturing wages “crowds out” manufacturing employment and accelerates “de-industrialization”. Wage increases “force” manufacturing investment to increase the level of industrialization, but only slightly. Social insurance premium increase induces industrialization by increasing manufacturing employment, but on the other hand it accelerates “de-industrialization” by “crowding out” manufacturing investment. Based on that, we put forward the following policy suggestions: increasing the effective labor supply in the industrial sector to slow down the increase in wages, implementing social security premium reform to reduce social security premium rate, reversing the situation of investment “fleeing from the real economy and into the virtual economy” in a multi-pronged manner, and optimizing the combination of labor, capital and technology in various ways.

JEL:E24, J32, O14

【KeyWords】
Labor Costs, Social Insurance Premium, Industrialization, “De-industrialization”, Mediating Effect