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6 The Labor Supply and Retirement Behavior of China's Older Workers and Elderly in Comparative Perspective--John Giles, Dewen Wang, and Wei Cai
Pages 116-147

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From page 116...
... Even where public transfer mechanisms are not as important, working-age adults may nonetheless face increasing burdens associated with supporting the elderly through both financial and in-kind transfers.2 Increasing the retirement age is frequently viewed as one feasible means of easing burdens on working 1 This chapter has benefited from conversations with Fang Cai, Xiaoyan Lei, Philip O'Keefe, Albert Park, James Smith, John Strauss, Firman Witoelar, Kyeongwon Yoo, Xiaoqing Yu, and Yaohui Zhao, and also from comments of David Wise, Yaohui Zhao, and other participants in the Conference on Aging in Asia, sponsored by the U.S. National Academy of Sciences and Chinese Academy of Social Sciences (Beijing, December 9–10, 2010)
From page 117...
... 4 In this sense, urban residents of China with formal sector employment face retirement decisions that are more similar to those of residents in devel oped countries. Residents of China's rural areas, by contrast, share more in common with residents of other developing countries, and make labor supply decisions in the absence of both pension availability and the con straint imposed by a mandatory age of retirement from the formal sector.
From page 118...
... EMPLOYMENT PATTERNS AND THE RETIREMENT OF OLDER WORKERS In China, long-term urban residents with formal sector employment can expect to receive a pension upon retirement, but face mandatory retirement at a relatively young age.6 Where urban employed men confront mandatory retirement at age 60, women in blue collar occupations are frequently required to retire at age 50, those in white collar occupations at 5 Blau (1994) suggests that social security eligibility contributes to relatively high exit from the labor force at age 65; Krueger and Pischke (1992)
From page 119...
... Instead, 38% of rural respondents over age 60 report that income from their own labor is their most important source of support.7 The stark difference in employment rates of rural and urban residents reflects differences in both pension wealth and mandatory retire ment provisions across urban and rural areas.8 As evident in Panel A of Figure 6-1, which presents locally weighted regression (LOWESS) estimates of employment rates by age, China's rural residents are far more likely to be employed well after the mandatory retirement ages faced by urban residents.
From page 120...
... CHNS (2009) Urban Male Urban Female B
From page 121...
... NOTE: Employment rates by age cohort are calculated using nonparametric locally weighted regression (LOWESS) with a band width of 0.3.
From page 122...
... One of the sharper changes from 1991 to 2009, as viewed from the CHNS, lies in the decline in employment rates of women over age 45 in urban China.10 The decline in older women's labor force participation raises an important question for labor research in China: Does the decline in women's employment reflect a resurgence of gender discrimination in post-reform China or the effects of increases in household wealth and the ability of women to exit the labor force at a younger age? Differences across genders in mandatory retirement ages likely create an institutional bias against women's employment.
From page 123...
... The fact that older working-age women, who have not yet reached mandatory retirement age, continue to have lower employment rates, even after labor markets tightened during the 2000s, raises the possibility that exits from the labor force may be a choice facilitated by higher wealth or by increasing demands on time for nonmarket activities, such as caring for children, elderly, or other ill family members. Exits from employment among older workers as they approach pension eligibility are not unusual in more developed economies such as the United Kingdom and the United States, but exit rates in the years before retirement age are not typically as high as one observes in China.
From page 124...
... Korea UK 1 1 1 .8 .8 .8 .6 .6 .6 .4 .4 .4 Working / Total .2 .2 .2 0 0 0 45 50 55 60 65 70 75 80 85 90 45 50 55 60 65 70 75 80 85 90 Age Age 45 50 55 60 65 70 75 80 85 90 Age Urban Male Urban Female Urban Male Urban Female Rural Male Rural Female Rural Male Rural Female Male Female FIGURE 6-2 Employment rates by age cohort in China, Indonesia, Korea, United Kingdom, and the United States. NOTE: Employment rates by age cohort are calculated using non-parametric locally weighted regression (LOWESS)
From page 125...
... Differences in mandatory retirement ages of men and women in China may have a significant impact on how employers view the relative returns to hiring male and female employees who are in their 40s and older.12 In Korea and Indonesia, retirement ages are not mandated by the law, but employment laws allow for firms to set mandatory ages, and govern ment employees and civil servants face mandatory retirement. After the East Asian financial crisis in 1997/1998, firms that had not implemented mandatory retirement started to do so as a way of slowing wage increases associated with seniority-based wage systems (Cho and Kim, 2005)
From page 126...
... Rural Korea is a somewhat different matter. Efforts to bring rural residents into the National Pension scheme established in 1988 have led to pension coverage rates in rural areas that do not differ significantly from urban areas; indeed, 34% of older rural men in the 2006 Korean Longitudinal Study of Aging (KLoSA)
From page 127...
... In the analytical models that we estimate, we make use of the cross-sections from China, Indonesia, and Korea used for basic descriptive statistics presented above.15 Below, we provide some additional discussion of the analysis sample used for each country. China The China Health and Retirement Longitudinal Study (CHARLS)
From page 128...
... . While these models should be viewed as providing descriptive evidence, we choose measures of health status and proxies for wealth and family characteristics with the aim of minimizing endogeneity biases.
From page 129...
... , and Korea (KLoSA, 2006) provide roughly comparable information on labor supply, health status, and education of both the respondent and spouse, and information on parents and children regardless of current residence in the household.18 We estimate the reduced form labor supply model in each country: LS = β1Ei + β2 Ei2 + β3 Peni + β4 Pen− i + i (1)
From page 130...
... , as a proxy for household wealth. Within the retirement literature in the United States, recent research has focused on the important roles of spouse employment and spouse health status in labor supply and retirement decisions.
From page 131...
... are suggestive of the role that eligibility for a pension may play in retirement of older workers and elderly. In these figures, the line shows the share of population in two-year age cohorts that is employed in some productive activity (salaried work, informal sector wage labor, casual work, selfemployed activities, or unpaid employment in family-run enterprises)
From page 132...
... SOURCES: Calculated using the 2008 CHARLS pilot (China) , 2007 IFLS (Indonesia)
From page 133...
... Indonesia Urban Male Urban Female 1 1 .8 .8 .6 .6 Rate .4 .4 .2 .2 0 0 45/46 49/50 53/54 57/58 61/62 65/66 69/70 45/46 49/50 53/54 57/58 61/62 65/66 69/70 Age Age Pension Eligible Working/Total Pension Eligible Working/Total Rural Male Rural Female 1 1 .8 .8 .6 .6 Rate .4 .4 .2 .2 0 0 45/46 49/50 53/54 57/58 61/62 65/66 69/70 45/46 49/50 53/54 57/58 61/62 65/66 69/70 Age Age Pension Eligible Working/Total Pension Eligible Working/Total (Only includes adults who directly reported to the employment survey) FIGURE 6-3 Continued 133
From page 134...
... 134 Korea Urban Male Urban Female 1 1 .8 .8 .6 .6 Rate .4 .4 .2 .2 0 0 45/46 49/50 53/54 57/58 61/62 65/66 69/70 45/46 49/50 53/54 57/58 61/62 65/66 69/70 Age Age Pension Eligible Working/Total Pension Eligible Working/Total Rural Male Rural Female 1 1 .8 .8 .6 .6 Rate .4 .4 .2 .2 0 0 45/46 49/50 53/54 57/58 61/62 65/66 69/70 45/46 49/50 53/54 57/58 61/62 65/66 69/70 Age Age Pension Eligible Working/Total Pension Eligible Working/Total FIGURE 6-3 Continued R02177
From page 135...
... In Korea, by contrast, access to a pension only affects the employment status of men in urban areas. This may not be surprising if pension coverage or income is particularly low in Korea, or is earned by wealthier households whose labor force participation is affected by other factors.
From page 136...
... (0.01) Observations 256 236 1,000 1,103 R-squared 0.464 0.458 0.308 0.325 NOTES: These regression models contain an indicator for married, spouse information not present, and dummy for no-existence of adult children.
From page 137...
... Urban Rural Urban Rural Male Female Male Female Male Female Male Female 0.021*
From page 138...
... A husband's pension eligibility does not have an independent effect on labor supply. Work and Health Status For those workers in developing countries involved in manual tasks, such as work in agriculture, we would expect to observe a strong relationship between health status and labor force participation.
From page 139...
... Interdependence of Spouse Retirement Decisions In Table 6-2, we present results from estimates of model (2) , which provide insight into the joint retirement decisions of spouses and the role of spouse health status in retirement.
From page 140...
... (0.02) Observations 256 236 1,000 1,103 R-squared 0.489 0.482 0.320 0.343 NOTES: These regression models include age, age-squared, years of education, years of education-squared, average education of spouse and adult children, number of living grandparents, number of grandchildren, indicator variables for married, for spouse information not present and for no adult children, and city dummies (China: county; Indonesia: Kabupaten; Korea: metropolitan city and province)
From page 141...
... Urban Rural Urban Rural Male Female Male Female Male Female Male Female –0.235*
From page 142...
... In common with Indonesia and other developing countries, however, China is experiencing population aging at lower income levels and prior to the extension of pensions to rural residents and to urban residents in the informal sector. In a sense, China has two retirement systems: a formal system, under which urban employees receive generous pensions and face mandatory retirement by 60, and an informal system, under which rural residents and individuals in the urban informal sector rely on family support in old age and have much longer working lives.
From page 143...
... In Indonesia and Korea, where there is no difference in mandatory retirement ages for men and women in the civil service or formal sector, women's labor force participation also declines after 45, but these declines are not nearly as steep as those observed for urban Chinese women. Apart from the disparity between mandatory retirement age for men and women from government and formal sector employers, retirement ages are quite low for those with formal sector employment in urban China.
From page 144...
... A key area of employment experi mentation in OECD countries is through introduction of flexible work arrangements, accompanied by removal of mandatory retirement ages and promotion of "job-sharing," which has received positive reviews as a component of labor market reforms in Germany. China could benefit from assessment of international lessons and expansion of pilots domestically in these areas.29 While this study has focused primarily on the relationship between pension eligibility, mandatory retirement, and work activity, the positive relationship in urban China between educational attainment and contin ued employment at the high end of the education distribution (for those with more than high school education)
From page 145...
... . On using mandatory retirement to reduce workforce in Korea.
From page 146...
... . Childcare, eldercare, and labor force participation of married women in urban China, 1982-2000.
From page 147...
... . Ex Ante Methods to Assess the Impact of Social Insurance Policies on Labor Supply with an Application to Brazil.


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