Effects of manufacturing input servitization on labor income share and income distribution

Abstract

AbstractIn recent times, a transformative phenomenon has emerged within the realm of manufacturing known as “manufacturing input servitization.” This concept involves the integration of services into traditional manufacturing processes, and while it has received some attention, its implications for labor income distribution have not been extensively explored. This study embarks on an exploration of the intricate relationship between manufacturing input servitization and labor income share, with a specific focus on its impact on income distribution. Employing rigorous regression analysis techniques, this paper rigorously assesses the relationship between manufacturing input servitization and labor income share. Our analysis also delves into mediation effects, uncovering the pivotal roles played by labor productivity and human capital in driving labor income share improvements. The results consistently reveal a positive correlation between manufacturing input servitization and labor income share, an association that persists even after controlling for various factors. Heterogeneity analysis further showcases that the medium-technology manufacturing sector benefits the most from servitization, closely followed by the high-technology and low-technology sectors. In addition, this research highlights a pronounced impact of manufacturing servitization on labor income in developing economies compared to their developed counterparts. Beyond the empirical discoveries, extended analysis reveals a implication: the enhancement of labor income share in the manufacturing sector contributes significantly to reducing income inequality across the broader economy. These findings hold substantial implications for both policymakers and manufacturing firms. Encouraging the adoption of servitization strategies within manufacturing not only fosters labor income growth but also aligns with the broader societal goal of reducing income inequality. As such, this research provides invaluable insights for stakeholders committed to nurturing inclusive economic growth.