The heterogeneous effects of employment-based pension policies on employment: Evidence from urban China

Pension contributions are usually non-trivial labor costs for firms in formal sectors. This paper aims to examine the heterogeneous effects of employer pension contribution rates on employment by exploiting temporal and spatial variations in the statutory pension contribution rates of the Basic Old-Age Insurance (BOAI) in urban China. We refer to the China’s Urban Household Survey (UHS) (2002–2009), in order to demonstrate that increasing the employer statutory pension contribution rates leads to a decrease in employment in state-owned enterprises (SOEs), and an increase in employment in private enterprises. Overall, the pension contribution rates for employers has no obvious effects on total employment. Our results highlight that private sector employment can be an important mechanism to absorb displaced workers produced by labor market policies.