The impact of birth rate policies on the income disparity between labor and capital.

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Peer-reviewed scientific article

Mechanisms of the impact of fertility policies on the labor-capital income gap

Wei Cui, An-Wei Wang, Yuan Zheng x

Publication date: April 26, 2024.

Achievements

This paper investigates the mechanism of the impact of incentive fertility policies on the decline in the labor income share. Using a production function, the specific pathways through which this impact mechanism is realized are analyzed. It is found that an incentive fertility policy leads to an increased level of capital accumulation, which means more, cheaper, and more easily available capital that can be invested in production.

An income distribution system based on factor endowments leads to greater gains for capital than for labor, which is observed in the form of a declining share of income from labor and a widening income gap between labor and capital.

Additional theoretical hypotheses include that fertility-stimulating policies negatively affect the share of labor income; this effect is valid when studying a constrained economy; capital intensity is a mediating variable in the impact of fertility policies on the share of labor income.

To further confirm the mechanism of impact, this article applied Hansen's threshold panel model to test whether the effect of fertility policy on the share of labor income has a threshold effect. This indicates that the effect of the first variable on the second changes significantly before and after the change in fertility policy, confirming the existence of the mechanism.