Based on the sample of Chinese A-listed firms from 2003 to 2020, this paper investigates the effect of common institutional ownership on labor income share. The result shows that common institutional ownership can significantly increase firms’ labor income share. Mechanism tests indicate that common ownership can: 1) alleviate financial constraints by reducing the debt financing costs and increasing the trade credit financing, thus increasing the labor income share; 2) improve corporate innovation and therefore enhances the demand for highly-skilled labor, which eventually boost labor income share. Competitive hypothesis test represents that common institutional ownership can reduce the monopoly power of enterprises and decrease monopoly rent, so as to increase the proportion of labor in the distribution. Further analyses present that the network formed by the common ownership can effectively exert the financing support role of SOEs and the knowledge spillover effect of innovative-advantage firms, which contributes to the labor income share increasing of other related firms in the network connection. This study not only enriches the economic consequences of common institutional ownership, but also provides policy guidance for the government to further optimize the income-distribution pattern by deepening the reform of the financial market.

This study investigates the relationship between ESG (environmental, social, and governance) ratings and labor share at the firm level. Using data from Chinese A-share listed firms from 2011 to 2021, we find a significantly positive relationship between the two. Furthermore, we document that state-owned enterprises do not demonstrate a strong sense of political and social responsibility in their employee recruitment projects, while companies with high ESG ratings in East China could increase their labor share due to less stringent financial constraints. Finally, the employment-creation effect of ESG ratings is one of the important channels for improving labor share. Considering the increasing awareness of ESG concepts and the boom in ESG investing, our findings hold significant relevance for employees, directors, investors, and public policymakers.

Predicted TFP gains under Hsieh and Klenow (2009)’s framework are sensitive to demand elasticities and returns to scale, but simultaneously estimating them is difficult. We solve this problem by developing a framework allowing for an arbitrary distribution of firm-level markups and use microdata to estimate industry-specific production elasticities, within-industry type-specific demand elasticities when types are not observed, and firm-specific distortions. We apply our model to 2005 Chinese firm-level data and find that the predicted Total Factor Productivity (TFP) gains are 44% which is half of the previous findings. While the variation in markups does not affect predicted TFP gains, it lowers the predicted increase in labor income share by one-third, suggesting lower gains to average workers due to heterogeneous markups.