Estimating the incidences of the recent pension reform in China: evidence from 100,000 manufacturers

An ongoing reform in China mandates employers to contribute significant amounts to employee pension funds. This study estimates the impact of this reform on the wage, employment and performance of firms.

The document highlights different consequences for the reform:

• although the nominal wage of workers was not affected by employers' pension mandate, the real wage may have been declined due to the reform
• in this context, firms in provinces with lower inflation rates tended to make slower progress in pension contributions
• firms in agglomerated regions suffered significantly from the increased pension contribution, and their profits declined
• that is, the pension burden could not be fully transferred to employees
• nevertheless, firms in less agglomerated regions responded positively to the reform, and were not affected negatively
• this could be due to the subsidies from local governments as one way of attracting investment (e.g. pension costs are over-subsidised)
  

Policy implications for the ongoing reform include:

• depending on the purpose of the reform, the current design may need to be adjusted in different dimensions
• if the purpose of the reform is to force people to save, then the current design may not be efficient
• actually, a more efficient way to achieve this objective may be to rely more on individuals but not firms for the pension contribution
• in contrast, if the purpose is to increase the total compensation for employees, mandating the pension on firms might be superior to putting the burden on individuals
• yet, caution is recommended in this relevance for specific socio-economic and efficiency reasons
  

The authors conclude that the current pension reform has generated complicated incidences in China and may not be an efficient way of achieving the government goal. Hence, a revision of the reform design may be needed.