Digital and Green Synergistic Transformation Reshapes Factor Income Distribution through Labor Market Power in Chinese Manufacturing Firms

In the modern economy, a persistent worry haunts the conversation about progress: as machines become smarter and factories become greener, do workers lose out? The fear is that new technologies simply replace human hands, allowing companies to pay less because they need fewer people. This anxiety touches on a fundamental question of how the wealth created by a company is split between those who own the machines and those who operate them. For decades, economists often assumed that labor markets were perfectly competitive, meaning that if a worker created value, they would be paid exactly that amount. However, a growing body of evidence suggests that reality is different. In many places, companies hold a significant advantage over workers because there are often fewer jobs available than there are people looking for work. This imbalance, known as monopsony power, allows firms to keep wages lower than the true value the workers create, effectively taking a larger slice of the economic pie for themselves.

A new study by researchers at the Chongqing University of Education investigates whether the twin forces of digitalization and green development are making this imbalance worse or better. The researchers focused on Chinese manufacturing firms, examining how the coordinated push toward digital technologies and environmental sustainability reshapes the relationship between labor and capital. They asked a specific question: when a factory adopts smart technologies and cleaner processes at the same time, does it gain more power to suppress wages, or does the transformation actually force the company to compete harder for workers, thereby raising their share of the income? The answer, derived from a massive dataset spanning sixteen years, offers a surprising and nuanced perspective on the future of work.

The researchers analyzed data from over 800 listed manufacturing companies in China between 2007 and 2023. They built a detailed measure of how deeply each firm had integrated digital tools, such as artificial intelligence and big data, with green practices, like reducing pollution and investing in clean energy. They then compared this level of transformation against a calculated measure of the firm's power over its workers. This power was determined by looking at how much the wages paid to employees fell short of the actual value those employees generated for the company. If a firm pays a worker less than the value they create, it is exercising monopsony power; if the pay matches the value, the market is competitive. The study found that firms which advanced both digital and green strategies together saw a significant drop in this power. In other words, as these companies transformed, they became less able to suppress wages and more compelled to pay workers a fairer share of the value they created.

The study identifies three main reasons why this shift happens. First, the transformation creates a surge in the demand for workers. While digital tools can automate routine tasks, the combination of digital and green upgrades also creates entirely new types of jobs, such as data analysts, green technology specialists, and maintenance experts for new systems. This expansion means companies are hiring more people, not fewer. When a company needs to hire more workers, it must compete with other employers for that talent, which naturally drives wages up toward the true value of the work. Second, the transformation allows companies to grow larger. By using digital tools to find new markets and green strategies to build a better brand reputation, firms expand their production scale. As a company grows and operates across wider regions, it can no longer rely on a local monopoly to keep wages low; it must draw from a broader, more competitive pool of labor. Third, the heavy investment required for these upgrades acts as a catalyst. Building new digital infrastructure and retrofitting factories for green energy requires massive capital spending. This investment often complements human labor rather than replacing it, raising the productivity and value of the workers, which in turn justifies and necessitates higher pay.

The researchers also looked at whether this effect was the same for all types of companies. They found that the improvement in how workers were treated was most pronounced in state-owned enterprises. These firms, which often have a mandate to stabilize employment and protect livelihoods, seemed to translate their technological upgrades into better outcomes for workers more directly than private firms. The effect was also more robustly observed in larger companies, which likely have the resources to fully integrate these complex changes. Interestingly, the study tested whether better corporate governance, such as having more independent board members, helped ensure that the benefits of transformation reached workers. The data showed no clear link; the positive effect on wages appeared to happen regardless of how the company was internally managed, driven instead by the external pressure of the labor market itself.

One of the most striking findings concerns the separate roles of digital and green efforts. The study showed that while both digitalization and greening individually helped reduce a company's power to suppress wages, the digital component had a much stronger effect. However, the true power lies in doing both together. When digital capabilities empower green transitions and green goals guide digital investments, the result is a synergy that is greater than the sum of its parts. This combined approach creates a positive cycle where efficiency gains and new business models drive up the demand for skilled labor, forcing companies to share the rewards of their success with their workforce. The study explicitly rules out the idea that this transformation is merely a story of machines replacing people; instead, it shows that in the manufacturing sector, the net result of these combined strategies is an increase in the need for human labor and a shift in power back toward the worker.

The implications of these findings extend beyond the factory floor. The research suggests that the fear of technology inevitably leading to inequality may be misplaced when that technology is paired with sustainable development goals. The study indicates that the "pie" of economic value is not only getting larger through these transformations but is also being divided more fairly. This happens not because companies suddenly become more generous, but because the mechanics of the market change. As companies expand their operations and their need for skilled workers, the balance of power shifts. The workers, by virtue of being in higher demand, gain a stronger position to negotiate for their share of the profits.

The authors conclude that policy makers should encourage this dual path of digital and green development, not just for environmental or efficiency reasons, but as a way to ensure that the fruits of progress are shared. They suggest that supporting small and medium-sized enterprises in making these transitions is crucial, so that the benefits of fairer wages are not limited to only the largest firms. Furthermore, they emphasize the need for a unified labor market where workers can move freely to where they are needed, ensuring that the increased demand for labor translates directly into better pay and conditions. The study provides a clear, data-driven counter-narrative to the idea that technological change is inherently bad for workers, showing that when digital and green strategies are aligned, they can create a future where economic growth and worker prosperity reinforce one another.