The impact of government subsidies on labor income share: evidence from Chinese listed firms

This study constructs a theoretical model of labour income share in response to government subsidies and conducts an empirical analysis using data from non-financial Chinese A-share-listed companies on the Shanghai and Shenzhen stock exchanges from 2007 to 2024, employing a two-way fixed-effects model. The results confirm that government subsidies significantly increase corporate labour income share, a conclusion that remains robust after implementing robustness tests, treating endogeneity, and conducting heterogeneity analysis. Mechanism analysis reveals that subsidies elevate the labour income share through two distinct channels: increasing wage rates while decreasing labour productivity, reflecting an efficiency-equity trade-off at the firm level. Additionally, unproductive expenditures, growth strategies, and financial frictions exert significant moderating effects on the overall impact of government subsidies on labour income share, as well as on the channel mechanisms involving wage rates and labour productivity.