Firms' perception of economic policy uncertainty and the labor income share

The decline in the labor income share and its determinants has been widely discussed in recent decades. Using a sample of Chinese A-share listed firms from 2010 to 2020, this paper provides evidence of the impact of firms' subjective perceptions of economic policy uncertainty (FEPU) on the labor income share. Empirical results show that there is a significant decrease in the labor income share when firms perceive an increase in economic policy uncertainty. Cash payments to employees and related employee benefits tend to decline when firms perceive a rise in economic policy uncertainty, which leads to a lower labor income share when total operating revenue remains unchanged. Additionally, workers' bargaining power moderates this negative effect. Heterogeneity analysis reveals that the negative effect of FEPU on the labor income share is weaker or insignificant for high-skill-intensive firms, high-technology-intensive firms, low-capital-intensive firms, and central state-owned firms. This paper sheds new light on the factors contributing to the decline in the labor income share and provides relevant policy implications for the stabilization of the labor income share.