Can government procurement increase the labor share? Evidence from China

This paper examines the effect of government procurement on the firm-level labor share in China. Using manually collected local government contract data matched with A-share non-financial listed firms from 2015 to 2023, we find that firms receiving government procurement contracts experience increased labor shares. Government procurement enhances business stability and encourages regulatory and non-regulatory compliance, facilitating the allocation of economic gains to labor. This positive effect is primarily driven by non-SOEs and is pronounced among labor-intensive manufacturing firms. We also show that government procurement effectively promotes income equality and improves overall employee welfare. Our findings highlight the redistributive role of government procurement and the importance of contract design that aligns firm incentives with social objectives in emerging markets.