Digitalization generates equality? Enterprises' digital transformation, financing constraints, and labor share in China

A decline in labor share increases income inequality and hinders economic growth. Enterprises are accelerating digital transformation (DT), however, how this affects labor share remains to be determined. We employ the text mining method to obtain panel data on China's listed companies from 2010 to 2020, and the fixed effects model to investigate the impact of DT on labor share. The empirical results show that DT increases the labor share by easing financial limitations. This conclusion remains valid in a series of robustness tests, such as replacing the calculation methods of core explanatory and predicted variables, and adjusting the time horizon. In addition, the digitalization of state-owned enterprises, labor-intensive enterprises, enterprises with high bargaining power, and enterprises in highly developed digital financial areas, plays a more prominent role in promoting labor share. This study provides new empirical evidence on the income distribution effects of DT.

Automated summary

A decline in labor share increases income inequality and hinders economic growth. Digital transformation (DT) increases labor share by easing financial limitations.