Human Capital Accumulation and Labor Income Share:A New Interpretation

The paper analyzes the relation between human capital accumulation and labor income share.Our explanation differs from the existing literatures.A theoretical model is developed to show that human capital accumulation may affect capital-output ratio which can lower the labor income share when there is substitute relation between labor and capital.Empirical study is conducted with panel data set of 29 provinces from 1995 to 2007,and confirms that negative relation between human capital accumulation and labor income share and the mediation effect of the capital-output ratio.The reasons for the decline in the labor income share in China include government intervention,foreign trade and reform of state-owned enterprise.The improvement of the portion of tertiary industry and entry of FDI will enhance the labor income share.