Changes in the labor share of GDP: a U-shaped curve

In this paper, we try to find some general rules for labor share in primary distribution and the structural factors that cause a fall in labor share. We show that, in the process of economic growth in countries all over the world, the evolution of labor share is characterized by a U-shaped curve in which the turning point is $6,000 per capita GDP (in PPP, 2000). We develop a model to explain this phenomenon that provides an in-depth explanation for Kuznets inverted 11 hypothesis. Our findings indicate that the evolution of Chinal's, labor share is basically consistent with the model we have constructed. In addition, sectoral composition and the relative bargaining power of labor are also factors influencing labor share. These findings imply that labor share of primary distribution in China may enter an upward trajectory over the next two years. This process may be accelerated by the central government's policies for dealing with global financial crisis and by structural adjustment.