Class Power and China’s Productivity Miracle

Abstract

This paper aims to assess the relationship between industrial productivity and industrial wage share in China between 1980 and 2007, and to identify the determinants of the industrial wage share over the same period. The results suggest that the market reforms in China have led to a reduction of workers’ bargaining power, which in turn explains both the rapid productivity increase and the steady decline in the wage share observed since the beginning of the reforms. The results also suggest that privatization, labor market informalization, and retreat of the state from social provisioning are key factors explaining the decline in the wage share. The current Chinese model of development, however, is unsustainable for economic, social, and environmental reasons, and a sustainable model of development is likely to require a more egalitarian income distribution.