Firm Ownership and Social Insurance Inequality in Transitional China: Evidence from a Large Panel of Firm-Level Data

Abstract

In dramatic reforms during the past 15 years, China has aimed to create a unified social insurance system across state, collective, and private ownership sectors in urban areas. Despite this nominal equality, a large panel of firm-level data from 2004 to 2007 provides empirical evidence of large disparities between firm ownership sectors in social insurance participation and generosity. We examine three types of social insurance programme: pensions and medical insurance, unemployment insurance, and the housing provident fund and housing subsidies. The results demonstrate that state-owned firms continued to be more compliant in social insurance participation and more generous in their benefit levels than collective and foreign-owned firms. Private domestic firms lagged furthest behind, being at least two thirds less likely to participate in each social insurance programme than the average state-owned firm. These disparities remain substantial and robust even after controlling for various firm characteristics and running multiple sensitivity tests. As China continues to combat evasion of social insurance payments among firms, and as the informal sector expands rapidly, these results suggest that action is required to address ownership-based segmentation in the urban labour markets.