Analysis of Drivers of China's Labor Productivity Change: Industry Decomposition with the LMDI Model

Enhancing labor productivity is essential for sustaining economic growth and improving living standards. This paper utilizes the Logarithmic Mean Divisia Index (LMDI) model to decompose the drivers of labor productivity growth in China from 2000 to 2022, focusing on the impact of intra-industry effects and labor structure effects. Findings indicate that China’s primary productivity growth driver lies within intra-industry effects, with substantial contributions from the industrial and service sectors, while the impact of labor structure effects is relatively low. Although productivity growth slowed after the 2008 financial crisis, it has since stabilized. The agricultural sector’s contribution has remained steady, while industrial and service sectors experienced significant fluctuations during the pandemic. Based on these findings, this paper recommends fostering productivity enhancement by improving worker skills and upgrading industry structures. Furthermore, it advocates for advancing technological innovation and optimizing resource allocation in the industrial and service sectors to drive high-quality economic development in China.