China’s uninterrupted high-speed economic growth depends on promoting the process of industrialization. Based on provincial data during 2003—2016, this paper empirically estimates the impact of labor costs on China’s industrialization and examines its mechanism and path. The results show that the rising labor costs such as wages and social security premiums may lead to China’s “de-industrialization”. With
endogeneity excluded, the conclusion still holds. The following policy suggestions are proposed: increasing the effective labor supply in the industrial sector to slow down the increase in wages, implementing social insurance premium reform to reduce social security premium rate, reversing the situation of investment “fleeing from the real economy and into the virtual economy” in a multi-pronged manner, and
optimizing the combination of labor, capital and technology in various ways.
Keywords: labor costs, social insurance premiums, industrialization, “de-industrialization”, mediating effect
China Finance and Economic Review
Volume 8 Number 4 Winter 2019.P98