Abstract

This paper demystifies variation in labor’s share of national labor income in China from the perspective of the income gap. We extend the gross national labor income function by introducing a Gini coefficient to support our argument that the share of gross national labor income decreases with an increasing Gini coefficient. The hypotheses are tested using provincial data from 1996 to 2010: (1) the Gini coefficient’s ‘inverted U’ shape partially contributes to the U-shaped evolution of the labor income-share; (2) China’s 15 per cent decline in the labor income share can be explained by the widening income gap during that time. 

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