Social Protection: A Pillar for Inclusive Growth in China

Du Yang

Institute of Population and Labor Economics, CASS

Presentation Goal and Outline

• Presentation Goal: to briefly introduce the framework of social protection system in China and discuss the role of social protection in inclusive growth and the challenges to improve social protection in China

• Outline

Growth Pattern

China’s Social Protection System

Social Protection as Pillar of Inclusive Growth

The Challenges to improve Social Protection

Economic Performance and Changing Growth Pattern

• China has witnessed a great period of economic growth in the past three decades, which was mostly driven by industrialization

• But facing with new challenges: growing wages and labor shortage, imbalance macro economy, and the growing demand for inclusive growth

• In the document just released by CCP, increasing domestic demand is taken as the focal policy for economic transition in the next period of Five Year Plans

More and more stable growth

Secondary Tertiary

annual growth

S.D annual growth

S.D

1978-2009 11.54 4.55 10.88 3.37

1990-2009 11.98 4.26 9.97 2.26

2000-2009 10.96 2.01 10.48 1.45

Social protection system in China

Social Protection

Social SecuritySocial Safety Net

Pension Health Insurance

Unemployment Insurance

Poverty Reduction Programs

dibao

UrbanRural NCMS Urban

Employees Urban residents Employees Urban residents

Others

Others

Increasing spending on social protection in public finance

0

1

2

3

4

5

6

7

8

1990 1992 1994 1996 1998 2000 2002 2004 2006

% o

f to

tal

pu

bli

c ex

pen

se

Social Security Social Insurance

Participation in pension: urban China

30

40

50

60

70

80

901

99

0

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06Pro

po

rtio

n o

f p

ensi

on

sch

eme

par

tici

pan

ts (

%)

of employed of retired

Participation in rural pension

2000

3000

4000

5000

6000

7000

8000

9000

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

Co

ntr

ibu

tors

at

the

Ye

ar-e

nd

(te

n t

ho

usa

nd

))

4

6

8

10

12

14

16

18

20

Par

tici

pat

ion

(%

)

Contributors at the Year-end The Proportion

Number of urban and rural dibao beneficiaries

0

1000

2000

3000

4000

5000

2000.1

2

2001.1

2

2002.1

2

2003.1

2

2004.1

2

2005.1

2

2006.1

2

2007.1

2

2008.1

2

2009.5

Nu

mb

er

of

ben

efi

cia

ries

(ten

th

ou

san

d)

Urban dibao Rural dibao

Income Transfer of Social Programs0

.2.4

.6.8

1

shar

e of

am

ount

tran

sfer

ed

0 .2 .4 .6 .8 1population share

Dibao XiaG

UI 0.2

.4.6

.81

shar

e of

am

ount

tran

sfer

ed

0 .2 .4 .6 .8 1population share

Dibao XiaG

UI

The role of social protection in poverty reductionNumber of the Poor

(million)

Poverty Incidence

(%)

Poverty Line

(yuan/person)

1990 85.0 9.4 300

1991 94.0 10.4 304

1992 80.0 8.8 317

1994 70.0 7.7 440

1995 65.4 7.1 530

1997 49.6 5.4 640

1998 42.1 4.6 635

1999 34.1 3.7 625

2000 32.1 3.4 625

2001 29.3 3.2 630

2002 28.2 3.0 627

2003 29.0 3.1 637

2004 26.1 2.8 668

2005 23.7 2.5 683

2006 21.5 2.3 693

2007 14.8 1.6 785

2008 40.1 4.2 1196

2009 35.6 3.8 1196

The role of social protection in reducing inequalityLines Pre-Transfer After XG After UI After DB Post-Transfer

CULS1

p90/p10 6.326 6.544 6.291 6.195 6.407

GE(-1) 0.932 0.873 0.931 0.607 0.552

GE(0) 0.289 0.286 0.289 0.278 0.276

GE(1) 0.275 0.268 0.275 0.272 0.265

GE(2) 0.430 0.385 0.429 0.426 0.382

Gini 0.387 0.388 0.387 0.385 0.387

A(0.5) 0.128 0.127 0.128 0.126 0.125

A(1) 0.251 0.249 0.251 0.242 0.241

A(2) 0.651 0.636 0.651 0.548 0.525

CULS2

p90/p10 6.818 6.667 6.667 6.429 6.164

GE(-1) 0.551 0.524 0.549 0.425 0.379

GE(0) 0.280 0.278 0.278 0.265 0.260

GE(1) 0.263 0.262 0.262 0.257 0.254

GE(2) 0.339 0.337 0.338 0.335 0.330

Gini 0.391 0.390 0.390 0.387 0.384

A(0.5) 0.125 0.125 0.125 0.122 0.120

A(1) 0.244 0.243 0.243 0.233 0.229

A(2) 0.524 0.512 0.523 0.459 0.431

A more inclusive labor market

Dep. Var: log of hourly earnings

CULS2001 CULS2005 CULS2010

Migration (migrants=1)

-0.107 (3.85)***

-0.087 (2.95)***

-0.048 (2.38)**

Education 0.102 (25.21) 0.098 (20.60) 0.11 (30.98)

experience 0.005 (1.89) -0.001 (1.09) 0.018(6.48)

Squared exerpience -0.0 (-1.20) -0.0 (1.12) -0.0 (-5.13)

Gender (male=1) 0.21 (10.50) 0.24 (11.07) 0.18 (11.05)

City dummies Yes Yes Yes

Num of obs 6260 6535 7940

Adj-R2 0.31 0.42 0.37

Labor market regulations facilitate inclusive growth (CULS, 2010)

Local residents Migrants

Male Female Total Male Female Total

1. Fixed-term labor contract 56.22 61.29 58.35 50.46 52.17 51.26 2. Open-ended labor contract 20.48 14.98 18.17 4.96 2.88 3.98 3. Other contract (for specific

work, labor service company) 1.49 1.53 1.50 3.59 2.21 2.94

4. No labor contract 21.81 22.20 21.97 41.00 42.74 41.82

Local residents

Migrants

1.Do you think that when you are hired your employer should set a labor contract with you? (yes)

96.28 89.66

2.Do you think employers must pay you double wages for each month you worked beyond the allotted time for completing a labor contract? (yes)

82.20 79.47

3.If a worker violates the rules set by an employer can the employer terminate the worker’s labor contract? (yes)

68.83 72.90

4.If you meet the required conditions and suggest an open-ended contract, must your employer comply? (yes)

68.65 62.77

5.Within how long do you think the labor contract should be signed after being hired? (one month)

40.14 41.32

6.For a one-year labor contract, what is the maximum probationary period? (2 months)

24.54 23.72

Workers are aware of right to a labor contract, but vary in their familiarity with Specific provisions. Migrants and local residents have similar levels of awareness, which increases the possibility to improve the coverage of social protection .

Awareness of labor law provisions(CULS, 2010)

migrant workers share more than before

1221

1140

953

889

821

756

703

666644

600

800

1000

1200

1400

1600

2001 2002 2003 2004 2005 2006 2007 2008 2009

NBS RCRE PBC

The increasing wages for migrant workers also induce high demand for social Insurance.

Progress increasing coverage of migrants, and expanding health insurance coverage,(especially to nonworking individuals)

2005 2010

Local

residents

Migrants Local

residents

Migrants

Pension 65.5 6.1 73.0 19.4

working 74.5 6.0 77.0 20.0

Unemployed 49.1 5.6 37.7 4.11

Out of LM 67.2 9.2 78.7 20.2

Unemployment Ins. 18.9 1.9 26.2 5.75

working 31.8 2.1 47.2 6.58

Unemployed 15.4 0 8.25 0

Out of LM 4.5 0.28 7.80 1.18

Health Insurance 54.4 4.2 74.7 47.4

working 62.7 4.0 76.8 46.9

Unemployed 28.6 0 43.0 37.0

Out of LM 56.3 8.1 77.9 33.8

Segmentation: Social Insurance Coverage (CULS, 2005 and 2010)

Informality rates over time (CULS, 2001, 2005, 2010)

2001 2005 2010

Local Migrants Local Migrants Local Migrants

All 13.4 85.7 30.7 85.2 25.8 53.3

Wage employees 22.1 54.7 24.7 40.1

By gender:

Male 13.7 85.7 27.5 82.7 24.3 52.0

Female 13.1 85.8 35.0 88.4 27.8 54.9

By age:

16~29 11.6 80.9 26.5 81.7 21.2 47.3

30~39 15.8 89.2 34.1 85.2 21.5 53.3

40~49 14.2 94.3 33.8 91.9 31.3 60.9

50~59 9.22 92.1 24.2 85.5 27.1 64.2

60+ 20.6 93.9 37.6 84.9 63.2 75.6

By education:

0~6 41.4 92.7 68.0 86.8 50.6 78.1

7~9 19.4 87.8 42.5 89.3 44.7 61.4

10~12 12.1 78.4 30.4 83.3 27.9 50.0

13+ 5.0 61.0 18.0 43.5 11.9 23.4

The increasing formality in the labor market facilitate to increase the coverage of social protection. More wage employment in the labor market

Informality by residence status(CULS, 2001, 2005, 2010)

Notable reduction in informality of migrant employment while migrants arevulnerable groups in terms of social protection

Informal employment: incidence, working hours, and earnings (CULS, 2010)

Incidence

(%)

Weekly

Working

Hours

Monthly

Earnings

(yuan)

Hourly

Earnings

(yuan/hour)

Local workers 100 44.88 2454 13.53

Formal Employment 71.59 42.36 2769 15.66

Informal Employment 28.41 51.26 1659 8.14

Family workers 1.24 49.52 1186 7.02

Self-employment 7.00 60.83 2124 8.99

Employee in informal sector 5.48 48. 54 1486 7.67

Employed informally in formal sector 13.99 46.96 1452 7.77

Employer in informal sector 0.71 65.42 3340 12.51

Migrant workers 100 56.98 2591 11.94

Formal Employment 42.18 49.66 3229 16.36

Informal Employment 57.82 62.32 2127 8.72

Family workers 4.57 65.89 1840 7.21

Self-employment 26.07 68.78 2277 8.57

Employee in informal sector 10.80 56.99 1855 8.95

Employed informally in formal sector 14.25 52.22 1912 8.95

Employer in informal sector 2.12 70.57 3724 14.96

But the low earnings in informal sector could be a constraint to increase the coverage

Conclusions

• China has been expanding the social protection system rapidly although the overall coverage rates are still relatively low

• The Chinese government has strengthened the labor market regulations, as evidenced by a flock of new labor related laws enacted. It seems that stricter regulations have positive effects on increasing the coverage rates

• The changes of main labor market outcomes facilitate the coverage improvement too, including the increasing earnings for unskilled workers and increasing formality

• The main work for the Chinese government so far is to construct new system aiming to cover more people, however, in the future China will be challenging by the integration of different components of the system