The Impact of Confucian Culture on the Labor Income Share in Firms

Abstract

Against the backdrop of China’s national strategy to achieve common prosperity, optimizing the income distribution structure has become a critical policy issue. This study investigates the impact of Confucian culture on the labor income share in firms, using panel data from A-share listed companies in Shanghai and Shenzhen between 2008 and 2021. A novel Confucian culture index is constructed based on geographical distribution, and a fixed-effects panel regression model is employed for empirical analysis. The results show that Confucian culture significantly increases the labor income share within firms. Further mechanism analysis reveals that this effect operates through two main channels: alleviating financing constraints and enhancing employee compensation. Specifically, Confucian norms help lower financing costs by fostering trust-based mechanisms, thereby expanding firms’ capacity to pay wages; at the same time, they promote greater attention to employees' welfare, improve compensation conditions, and facilitate a redistribution of corporate income in favor of labor. This study enriches the literature on the role of cultural factors in income distribution and provides theoretical insights for optimizing corporate income allocation and advancing the goal of common prosperity.