Trade liberalisation and labour shares in China

We estimate the extent to which firms responded to tariff reductions associated with China's WTO entry by altering labour's share of value. Firm-level regressions indicate that firms in industries subject to tariff cuts raised labour's share relative to economy-wide trends, both through input choices and rent sharing. Our estimates suggest that, on average, an industry that experienced no reductions in output or input tariffs would have a 15.7% lower labour share of value in 2007 than it actually did, assuming the same economy-wide trends. There is significant variation across firms: the impact attenuates with geographic remoteness and union presence and strengthens with foreign ownership.