The Impact Of New Rural Pension System On The Labor Supply Of The Rural Elderly

The elderly in the rural part of China have maintained a high level of labor supply for a long time. Researchers call this phenomenon as "ceaseless toil". Few changes have taken place with the development of the economy and our society. There are many explanations for the current situation. Historical inherited factors no doubt play an important role. In addition, great changes in our economic structure and our society are also the main reasons. China’s New Rural Pension Pilot started in 2009 in order to guarantee the basic livelihood of the elderly in rural areas and improve their welfare. At the end of 2012, it achieved full coverage in China. In other words, New Rural Pension System has operated for more than five years till now. The welfare of the elderly in rural areas can be evaluated in many aspects. Labor supply is no doubt one of them. It is widely concerned whether the introduction of New Rural Pension System has changed the elderly’s labor supply decision.At first, this paper briefly introduces both the foreign and domestic literatures about the relationship between the pension system and labor supply. Then it does the theoretical analysis about how new rural pension affects the elderly’s labor supply. Based on that, the paper evaluates whether this policy works in terms of influencing the rural elderly’s labor supply. The empirical analysis uses the dataset, which includes samples from two provinces, Zhejiang and Gansu, collected by China Health and Retirement Longitudinal Study (CHARLS) in 2008 and 2012 and takes the samples which are 60 years old and above as the research object. The research model is based on the Difference-in-Differences (DID) method. According to the result, new rural pension income has no significant impact on whether the rural elderly choose to retire or not. However, it improves the livelihood level of the rural elderly and reduces their annual working time dramatically, which means the rural elderly tend to increase their demand for leisure. In a word, New Rural Pension System, to some extent, improves the rural elderly’s welfare.As above, we have to admit that our New Rural Pension System could only provide limited social security. It does not play a significant role in ameliorating the elderly’s welfare. Therefore, this paper recommends that we should gradually increase the substitution rate of the New Rural Pension System. Second, the incentive system should be improved in order to attract the rural residents to participate in the system as soon as they can and raise their level of self-security in their old age. Last but not least, the circulation of rural land management right could provide an important source of income for the rural elderly. It not only can reduce their labor supply, but also improves their welfare.