AN EVALUATION OF THE ENTERPRISE REFORM IN CHINA - INCOME SHARE OF LABOR AND PROFITABILITY IN THE MACHINE INDUSTRY

As for the economic reforms in China since 1978, some scholars claim t he existence of profit maximization behaviors of enterprises and that of competitive labor markets, while others are suspicious about the re sult of economic reforms. This paper provides a case study for machine industry in China as a whole for 1980-85 and in Tianjin for 1985-90. Firstly, we carefully estimate workers' cash incomes and various non-c ash incomes to obtain relative share of labor. Secondly, we estimate p roduction function to get output elasticity of labor. Finally, by comp aring the labor's share and the output elasticity, we show that the fo rmer increased rapidly as the reform programs were implemented and exc eeded the latter in 1988. Our estimate indicates that the incentive wa ge systems introduced in the mid-1980s allocated a large portion of pr ofits to wages and increased the labor's share significantly.