Retirement Trends in ChinaYaohui Zhao, Peking University

Prepared for “SIEPR Conference on Working Longer and Retirement”, Stanford University, October 8-9, 2015

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China has one of the fastest ageing population in the world.

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• 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.

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

• 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

China Health and Retirement Longitudinal Study (CHARLS)

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CHARLS Counties

CHARLS Timeline

Two Province baseline

National baseline

Two province wave 2

2008: 2 provinces; 32 counties/districts 95 villages/communities 2,850 respondents

2011.05-2012.03: national random sampling 150 counties/districts across 28 provinces 17,708 respondents

2012.07-08: Follow-up survey of pilot sample

National wave 2 2013.7-12: Follow-up survey ofnational baseline sample

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Life history 2014.7-10 ： National sample

National wave 3 2015.7-10: Follow-up survey ofnational baseline sample

Sampling Quality: CHARLS vs. Census0

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46 50 55 60 65 70 75 80 85 90+Age

Age Distribution

CHARLS Census

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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

• 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

1. Validate Life History Data

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.

Overall, CHARLS life history captures the most recent past 25 years quite well.

Census seems to under-report urban employment. Unless probed, urban people tend to be shy in reporting self-employment activities.

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.

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• 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.

Note: hukou is then.

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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.

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

2005 2006 2007 2008 200930

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Mechanization Rate of Planting and Harvesting

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%

With accelerated mechanization of agriculture since 2000, demand for farm labor declines. This may be responsible for the decline in employment of older farmers.

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1990 1995 2000 2005 2010Year

Rural Urban

Data source: National Bureau of Statistics

Annual Per Capita Incomes, Current Prices

He. Wealth Effect?

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.

• Retirement hazard rates have spikes:• Urban men at 60, women at 50 and 55• None for rural people

Employee Pension Encourages Retirement

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Urban MaleUrban FemaleRural MaleRural Female%

Retirement Hazard Rate

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Urban Male RetirementUrban Female RetirementMale Processed RetirementFemale Processed Retirement%

Retirement and Processed Retirement Hazard Rate

Unconditional Hazard Rate

• 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 (45-59) 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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