Institutional openness and the labor income share of enterprises - A decade and a half of empirical evidence from China's free trade zones

This study uses data from publicly listed companies from 2008 to 2023 and treats the establishment of Free Trade Zones (FTZs) as a quasinatural experiment to examine how institutional openness affects the labor income share of enterprises. The results show that FTZs establishment significantly increases the labor income share of firms within these regions. Further analysis reveals two promotion channels: improvements in regional human capital structure and acceleration of technological innovation within enterprises. However, the rise in digitalization within FTZs can offset part of this positive effect. Heterogeneity analysis indicates that the impact is stronger for labor-intensive and nonstate-owned enterprises with higher levels of digitalization, higher wages in digital firms, and more advanced human capital structures. • Uses China's Free Trade Zones (2008–2023) as a quasi-natural experiment on institutional openness. • Finds FTZ establishment significantly increases the labor income share of enterprises. • Identifies human capital upgrading and technological innovation as main promoting channels. • Reveals digital transformation partly offsets FTZs' positive distributional effects through automation. • Shows stronger impacts in labor-intensive and non-state-owned enterprises.