A Study On The Employment Effect Of Social Security Contribution In China

After decades of development, especially since the reform and opening up, China’s social security system has made remarkable achievements. However, because of the relatively high contribution rate, fast growth of base pay and system design deficiencies, China’s social security charges has generated a certain influence on the labor employment in the context of relatively abundant labor resources and labor market policy control escalating. In this paper, combing with the theoretical and empirical studies of the employment effects of social security contribution, we analysis the employment effects of China’s social security contribution system systematically through micro-econometric methods and propose some policy suggestions on how to improve the employment effect of social security contribution system. The purpose of this paper is to lessen the negative employment effect of social security contribution, promote healthy development of the social security system and improve the welfare and employment effect of it.Besides the structural imbalance of supply and demand on the labor force, China’s current social security system is not taken as conducive to the employment in the financing mechanism, contribution base, overall level and collection system aspects, so the unemployment problem is more severe than the China’s official statistics data. The fast rising in social security contribution increased labor costs of enterprises, while the wages regulation on labor market, such as the minimum wage system, makes enterprises can not pass the burden of social security contributions on to the workers completely, so China’s social security contribution is possible to lead negative impact to the employment. What’s more, due to the reduction of disposable income and uncertainty of future profit caused by the contribution, the excessively rapid growth of social security contribution may influence labor supply. It is obvious that the high level of social security contribution has adverse effect on employment. Based on the characteristics of the mode of payment of social insurance and labor market situation, this paper carries out some metrological examinations for the employment effect of China’s social security contribution:Firstly, verified the crowding-out effect to employment caused by China’s social security contribution. Through timing data of1989-2011, we find the long-term co-integration relationship exists between China’s social security contribution and total unemployment,social security contribution increasing is the Granger causality of unemployment; then by2004-2010provincial panel data analysis, we find social security contribution has significant crowding-out effect on employment, while there are differences in geographical and scope:the crowding-out effect in high-income areas is greater than that in low-income areas, the crowding-out effect on total employment is greater than on the urban employment. Trace it to its reason, the former factors may include the broader social security coverage, the greater collection efforts and more strict regulatory in high-income areas, while the later may be related to the proportion of low-income worker of total employment in low-skilled is higher than that of urban employment, this also shows that social security contributions has greater crowding-out effect on the employment of low-level workers.Secondly, the labor supply effect of social security contribution is also examined in this paper. The labor supply effect caused by the increasing of social security contribution is taken as a quasi-natural experiment and three experiments are designed in the paper based on the cross period-sectional CHNS data. The experimental results show that, the rise of the social security contribution has a negative effect on the labor supply of low-income women but has a positive effect on labor supply of men who participant in the urban social security system. Female labor time reduction should be related to the relatively weak position of women in the labor market and their responsibility for the housework. Male labor time extension should be related to the fact, which pointed out by Stiglitz, that in countries with relatively abundant labor supply and lower level of social welfare, workers need to work harder to make money in order to prevent the possible various risks that occur in the future. It is also showed by the research that the average working time of labors is far exceed the legal working hours stipulated by the state, which indicates that the increasing of contribution adds the risk of overwork of the male works and brings adverse effect to social welfare.Thirdly, the employment effect caused by minimum contribution base of social security contribution is examined. Minimum social security contribution base is generally higher than the minimum wage, so the actual social security contribution rate for low-income workers is higher than the nominal contribution rate in most of cities in China, which may adversely affect the employment of low-income people. The empirical data of the four municipalities, namely Beijing, Shanghai, Tianjin, Chongqing, show that the rise of the minimum social security contribution base has even more serious negative impact on employment when compared to the minimum wage increase. The basic cause is that, the rise of minimum wage is to transfer funds from the enterprise to the workers, so workers will be make more effort in their work, while the increase of minimum social security contribution base is to transfer funds from the enterprise to the social security co-ordinate accounts, which has typical nature of the tax. Therefore, the crowding-out effect on employment caused the minimum social security contribution base increase will be more obvious than the minimum wage increasing in the case of the same labor costs increase to the enterprise.The main purpose of the reform of China’s social security contribution system is to reduce the adverse impact of the contribution on employment by means of pointed system improvement. By combing the experience of the international social security contribution system designing and payment structure adjustment, this paper provides a bundle of policy proposals, which includes reducing social security contribution rate moderately, increasing government transfer payments for social security contribution special items, canceling the lower bound of the taxable salary base and provide social security subsidies for low-income workers, and also points out that the transformation to the notional account system is the possible direction of the reforming of China’s social security contribution system.