Institutional Opening-up, Human Capital Upgrading and Firms' Labor Income Share

Using the phased implementation of China's Comprehensive Pilot Program for Expanding the Opening-up of the Service Sector since 2015 as a quasi-natural experiment, this paper investigates the impact of institutional opening-up on firms' labor income share based on the panel data of A-share listed manufacturing firms in Shanghai and Shenzhen from 2009 to 2024. Employing a staggered difference-in-differences approach, we find that institutional opening-up significantly increases firms' labor income share, and the policy effects exhibit a persistent and cumulative pattern. Mechanism analyses show that, in terms of human capital, institutional opening-up promotes an upgrading of firms' educational structure—reflected in an increase in the share of employees with a master's degree or above and a decline in the share of employees with below-bachelor education—thereby shifting the workforce toward higher-skilled labor. This shift enhances the marginal product and wage premium of highskilled workers, ultimately raising the labor income share. In terms of market structure, institutional opening-up significantly reduces industry concentration and firms' market power. Intensified competition compresses capital returns, which in turn increases the relative share of labor in value added. Overall, this study provides new quasiexperimental evidence for understanding the evolution of labor income share in Chinese firms and its micro-level mechanisms from the perspective of institutional opening-up.