Retirement Trends in China
Yaohui Zhao, Peking University
Prepared for “SIEPR Conference on Working Longer and
Retirement”, Stanford University, October 8-9, 2015
1
China has one of the fastest ageing population in the world.
4.9
1.4
• One of the major challenges of population aging is the shrinkage of working
population relative to those in retirement.
• The current retirement age of 60 will quickly become unsustainable.
3
Policy Question
• Is there a potential for raising employment in the
future?
Research Questions:
• What has been the recent trend of
employment/retirement?
– The past trend is unknown and under studied
– The recent thee decades have been the most
dynamic period of the Chinese history
• What explains the trend?
• However, no nationally representative survey
covering the period is available
China Health and Retirement Longitudinal Study
(CHARLS)
• HRS-type biennial panel of nationally
representative of population over age 45
• Pilot survey in 2008: Zhejiang and Gansu;
followed up in 2012
• National baseline survey in 2011-2012:
10,257 households, 17,708 respondents
– 150 counties in 28 provinces
– Followed up in 2013 and 2015
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CHARLS Counties
CHARLS Timeline
Two Province baseline
2008: 2 provinces; 32 counties/districts
95 villages/communities
2,850 respondents
National baseline
2011.05-2012.03: national random sampling
150 counties/districts across 28 provinces
17,708 respondents
Two province wave 2
2012.07-08: Follow-up survey of pilot sample
National wave 2
Life history
National wave 3
2013.7-12:
Follow-up survey of
national baseline sample
2014.7-10： National sample
2015.7-10:
Follow-up survey of
national baseline sample
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Sampling Quality: CHARLS vs. Census
0
2
4
6
Age Distribution
46
50
55
60
65
70
75
80
Age
CHARLS
Census
85
90+
10
CHARLS Life History Survey 2014
• Retrospective survey using the event history
calendar method
• Employment history – each job lasted 6 months or
more
• Reconstruct employment rate for particular age
groups in past years
1. Validate Life History Data
• Compare with published official census estimates
• 1990, 2000, 2005 mini census
• Compare with own calculations from census micro
data
• 1990, 2000, 2005 mini census
• Compare with actual CHARLS employment from
2011 wave
• Separate comparisons for urban and rural
estimates with micro-data based census data and
CHARLS baseline
• Hukou is then
Definitional Differences in
Employment
• Census: Did you work for pay at least one hour last
week?
• CHARLS:
• Did you work at least 10 days in agriculture in the past
year?
• If not, did you work for pay at least one hour last week
• CHARLS is expected to produce higher numbers
due to seasonality of agriculture
• Despite the gap, CHARLS trends closely mimic that from census.
• Because urban response rates are lower and LFP are lower too, CHARLS estimates
over-estimate participation. With proper weights this gap may reduce.
Relative to censuses, CHARLS has higher employment rates for women, similar rates
for men.
Census seems to under-report urban employment. Unless probed, urban people
tend to be shy in reporting self-employment activities.
Overall, CHARLS life history captures the most recent past 25 years quite well.
2. The Past Trend
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• There is an overall declining trend in employment rate for both men and women, but
interesting patterns exist within various age cohorts.
• Employment of men aged 60-64 declined in first half of 1990s than rebounded back.
• Employment of women aged 55-59 declined in first half of 1990, rebounded in second
half of 1990, declined thereafter.
• That of women aged 50-54 increased in the 1990s then declined.
D. Wise,
2014
If we compare with countries in this graph, the Chinese employment is still among the
highest despite the decline. The decline is not as pronounced.
Note: hukou is then.
• But if we look at urban and rural sectors separately, stories are vastly different.
• Urban older men started with much lower employment rates than their rural
counterparts and descended even faster.
• There appeared to be a rebound in recent years.
20
Urban older women started with much lower employment rates than their rural
counterparts, descended even faster and reversed the trend in the recent decade.
It is thus desirable to separately analyze urban and rural sectors.
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There are important and interesting trends in rural employment.
Employment rose in the 1990s and declined quite sharply in the 2000s.
Urban trends are opposite that of rural ones, declined first then stopped.
The reversing trend started with women around 2005 and men around 2010.
3. Explaining the Rural
Trend
There are important and interesting trends in rural employment.
Employment rose in the 1990s and declined quite sharply in the 2000s.
Ha: Structure of Urban vs. Rural
Populations
• Because rural people have higher employment,
when rural workers shifts to urban status, it
mechanically leads to a reduction of rural
employment and an increase in urban
employment.
Switch to Urban: % Previous
Year’s Rural hukou Holders
There are very little hukou changes among older populations, thus it cannot be a
driving force behind the trends.
Hb. Substitute Farm Labor
• There has been a massive transition of labor out of
agriculture
• Young persons moved first
• Older and female farmers stayed put to take care of land
• This led to the aging and feminization of
agricultural labor force
Young men led the growth of off-farm employment, followed by older men, young
women, and eventually older women.
Migration is an important part of the off-farm employment. Migration has been shown to
be more concentrated among younger and male workers.
CHARLS life history probably underestimates out-migration because we have a six-month
rule in the definition. Nevertheless, the rising trend is clear.
The change in labor force participation of older rural people correspond very well with
the change in agricultural employment. In other words, older and female workers
increase their labor force participation as younger and male workers exit agriculture.
Hc: Grandchildren Care
• The number of grandchildren in need of care increased in the 1990s, declined after
2000, contradicting the retirement trend. Thus childcare can not be the main factor.
• As children leave for off-farm work in the early 1990s, grandparents shouldered both
child care and farming.
Hd. Mechanization of Agriculture
Mechanization Rate of
Planting and Harvesting
50
49.1
48
45.9
46
44
%
42.5
42
39.3
40
38
36
35.9
34
32
30
2005
2006
2007
2008
2009
Year
With accelerated mechanization of agriculture since 2000, demand for farm labor
declines. This may be responsible for the decline in employment of older farmers.
He. Wealth Effect?
Annual Per Capita Incomes, Current Prices
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
1990
1995
2000
Year
Rural
2005
2010
Urban
Data source: National Bureau of Statistics
Income growth is monotonic, thus can not be the explanation for the whole trend,
but might have contributed to the decline since the 2000s.
4. Explaining the Urban
Trend
Urban trends are opposite that of rural ones, declined first then stopped.
The reversing trend started with women around 2005 and men around 2010.
Ha: Job Informalization
• The state sector faces rigid wage structure and
forces workers to leave once they reach the
retirement age (men: 60; women: 50 or 55)
• By working in non-state sectors, this constraint is
removed.
• Non-state sector, especially self-employment,
becomes a bridge if someone wants to work longer.
Employee Pension
Encourages Retirement
Unconditional Hazard Rate
%
Retirement Hazard Rate
18
Urban Male
15
Urban Female
12
Rural Male
Rural Female
9
6
3
0
45
50
55
60
65
70
75
Age
Retirement and Processed Retirement Hazard Rate
%
•
18
Urban Male Retirement
15
Urban Female Retirement
12
Male Processed Retirement
Retirement hazard rates have spikes:
9
6
• Urban men at 60, women at 50 and 55
• None for rural people
Female Processed Retirement
80
• State sector employment experienced sharp reductions in the mid-1990s due to
restructuring, which led to reduced LFP.
• Recent rise in non-state and informal sector employment is associated with rising LFP
in recent 5 years, especially among pre-retirement age men and women.
Hb: Pension Coverage
• In the recent decade, younger cohorts have reduced coverage of employee social
security pension. Thus the retirement behavior is less distorted by the retirement
age policy.
The pattern holds even if we exclude people who received urban hukou after age 30.
Hc: Early Retirement
Early retirement was granted liberally in the 1990s, but less early retirement has been
granted in recent years.
Hd. Educational Changes
• The share of younger cohorts with college degrees has gone up recently.
• Because retirement age of college educated women are 5 years later, improved
education attainment among women may have contributed to later retirement.
He. Grandchildren
Rapid reduction in the number of grandchildren in need of care enabled urban
people to stay in the work force.
Mortality selection?
Summaries and Conclusions
• Due to vast differences between urban and rural
employment among older populations, it is
necessary to study the two sectors separately
• Since 1990 LF participation of older rural women (4559) declined by about 10 percentage points. Rural
men’s decline was smaller.
• Among rural people there were varying trends in the
first decade – mid-aged women and older men first
increased work slightly before starting a long decline.
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• Even though urban men and women started at
much lower LFP, they had similar declines of
about 15 percentage points.
• Both urban men and women have reversed
the declining trend, starting at about 2000 for
women and 2005 for men.
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Rural Trends
• In rural areas, massive exit from agriculture by
younger and male workers seems to explain the
increase in employment of mid-aged women and
older men in the 1990s.
• Since 2000 the mechanization of agriculture seems
to explain the withdrawal of older and female work
force.
• Increased availability of economic resources and
reduction of # grandchildren are also related to a
gradual release of rural elderly people from the
hardship of farm and family labor.
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Urban Trends
• SOE restructuring and liberal use of early retirement
policy seem to explain the decline of employment in
the 1990s.
• Rapid growth of non-state and informal sector
employment, tightened early retirement, and a large
reduction in the number of young grandchildren are
all associated with delayed retirement since 2000.
• Improved educational attainment contributed to
later retirement among younger men and women.
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