China’s Rising Labor Remuneration and Evolving National Savings Rate

Yang Tianyu (杨天宇)* and Zhu Guang (朱光)

School of Applied Economics, Renmin University of China, Beijing

Abstract: Cash flow statements suggest that China’s rising labor remuneration has had a major impact on its national savings rate since 2008. Accordingly, this paper proposes labor remuneration hypotheses to explain the evolving trend of China’s national savings rate. We hypothesize that: (1) The certainty and predictability of household labor remuneration have led to excess sensitivity to consumption, with a corresponding decrease in the household savings rate; (2) rising household labor remuneration means a greater share of labor remuneration is paid by firms, resulting in a smaller corporate savings rate; (3) the increase in the payment of labor remuneration by firms as a share of national disposable income has resulted in the government spending more on social welfare and public services resulting in the government having a declining share of disposable income, less propensity to save, and a falling government savings rate. Using China’s provincial panel data of 2008-2016, we performed an empirical test with the minimum wage standard as the instrumental variable to verify the above hypothesis. To cope with economic growth pressures, China needs to shift from an investment-driven to a consumption-driven growth model and prioritize investment efficiency over quantity.

Keywords: National savings rate, labor remuneration, evolving trend, cash flow statement JEL Classification Code: E21, E24, O16DOI: 10.19602/j.chinaeconomist.2022.09.04

JEL Classification Code: E21, E24, O16

DOI: 10.19602/j.chinaeconomist.2022.09.04