Title: The Role of China's New Rural Pension Scheme on Late-Life Employment

Title:  The Role of China's New Rural Pension Scheme on Late-Life Employment

Background/Purpose:      

Recent estimates predict that the worldwide share of people aged 60 and older will more than double over the next 40 years.  In addition to embodying a growing share of the world’s population, the elderly will make up a sharply increasing share of the population of developing countries as life expectancies increase, with current projections reporting that 80% of the world’s elderly population will be living in developing countries by 2065.  It follows that two of the most pressing concerns for policymakers are the lack of knowledge on how transfer programs affect the quality of life for the elderly and how changing age compositions of countries will affect the compositions of their respective workforces.

The goal of this paper is to examine the effects of China’s new rural social pension scheme (NRPS) on employment after retirement age in China.  Before 2009, China’s pension policies focused almost exclusively on providing late-life monetary support to workers in the formal, mostly urban sector of the economy at the exclusion of workers in the informal, mostly rural sector.  Rural workers largely lacked access to any pension program and historically worked until much later in their lives in order to gain wages as compared to their urban, pension-protected counterparts. With the introduction of the NRPS in 2009, targeted at expanding pension coverage to include rural workers, China sought to drastically alter the makeup of its pension base, moving towards a more universal system of pension coverage in order to bolster growth across worker categories and aid China’s transition to an economy based on domestic consumption.

Methods:      

Data and samples:      This study is based on data from the 2011 and 2013 waves of the China Health and Retirement Longitudinal Study (CHARLS), a biennial survey of Chinese residents aged 45 years and older (n = 13,044).  

Measures:       We use employment status after age 60 as our dependent variable and rural pension eligibility as our key independent variable.  We also include age, gender, and educational attainment as key covariates, as well as individual and year fixed effects.  Using data from CHARLS, we create 20 years worth of retrospective data on respondents so we can compare employment outcomes over time.

Results:         Using our model, we find that individuals over age 60 who were eligible for the NRPS in 2013 were 5 percentage points (p < 0.001) less likely to be employed than were those who were not eligible after controlling for key covariates and province and year fixed effects. 

Conclusions and Implications:    Our findings provide strong evidence that China’s NRPS expansion has played some role in lowering late life employment among eligible adults.  This implies that China’s recently altered social pension system has been at least partially successful in providing citizens with a safety net strong enough to encourage late-life workforce exits, with the possible downstream effects of increasing household consumption and strengthening existing domestic arrangements.