Research on the income distribution effect of factor allocation efficiency changes among China’s three major industries

Abstract

This paper aims to study the impact of correcting the factor misallocation among China’s three major industries on China’s income gap and income distribution pattern. By using the industry Panel data at the provincial level in China, we measure the degree of factor misallocation among the three major industries in China’s provinces from 2002 to 2019 by building a factor misallocation measurement model, and then uses reverse thinking to compare the income gap under the condition of no factor misallocation with the actual income gap, and then obtains the impact of factor misallocation on the income gap, And use this method to focus on analyzing the impact of factor allocation efficiency changes among the three industries on income distribution pattern. The research finds that: (1) There is a serious factor misallocation among the three major industries in each province. From the perspective of subdivided factors, the factor misallocation among the three major industries in China’s provinces is mainly caused by labor misallocation. Factor misallocation shows a trend of convergence first and then divergence among regions. (2) There is a strong heterogeneity in the explanatory power of different dimensions of the income gap of factor misallocation among the three major industries in China’s provinces. Among them, correcting the misallocation of total factors among the three major industries in China’s provinces can only narrow the internal income gap of the tertiary sector of the economy, and expand the internal income gap between the primary and secondary industries. (3) The impact of correcting the total misallocation, capital misallocation and labor misallocation among the three industries on the income gap among industries or provinces is narrowing first and then expanding. (4) Further research shows that although the level of factor misallocation among provinces in China is significantly lower than the average level of factor misallocation among the three major industries within each province, it has a stronger explanatory power for the inter-provincial income gap. Correcting the total factor misallocation and labor misallocation among provinces can significantly reduce the inter-provincial income gap in China. Correcting the total factor misallocation and labor misallocation among provinces in 2019 can reduce the inter-provincial income gap by 51.48% and 81.68% respectively. Only correcting the capital misallocation among provinces will expand the inter-provincial income gap, and only correcting the capital misallocation among provinces in 2019 will expand the inter-provincial income gap by 112.21%.