Abstract: Increasing the labor income share is an inherent requirement for accelerating the establishment of a new development pattern and achieving Chinese-style modernization. As China's economy changes from catch-up growth to innovation-driven growth, the technological gap between domestic and foreign enterprises is gradually narrowing. This shift in technological structure at the enterprise level may have a crucial impact on the labor income share. The findings indicate that technological structure change plays a decisive role in the U-shaped evolution of China's labor income share. When the technological gap between domestic and foreign enterprises is large and has not yet converged to a critical threshold, the labor income share continues to decline. However, as the technological gap converges beyond the critical threshold, the labor income share begins to rise. Mediation mechanism tests indicate that the transformation of technological progress characteristics plays a key role in the nonlinear impact of technological structure change on the labor income share. Based on these findings, the study argues that the focus on China's economic development strategy should shift towards fostering innovation-driven growth. This entails encouraging more domestic enterprises to embark on a development path dominated by independent technological innovation, strengthening knowledge-labor-augmenting technological progress. Such a shift is identified as the micro-level impetus for achieving sustainable increase in labor income share. In the future, it is imperative to intensify reform efforts and accelerate the establishment of a high-level socialist market economy system that aligns with the demands of innovation-driven economic growth.
