A Small Amount Can Make a Big Difference: The Effect of the New Rural Social Pension Insurance Program on the Retirement Decision in China

Abstract

In 2009, the New Rural Social Pension Insurance program (NRSPI) was introduced and expanded to nationwide in 2012. This paper investigates the effect of the NRSPI on the retirement and old-age labor supply pattern in China using a two-wave nationwide survey data. Since the NRSPI is voluntary, we use instrument variables to control for the endogeneity bias. We find that receiving pension benefits from the NRSPI can substantially increase the likelihood of retirement and decrease number of working hours for females even though the pension benefit of the pension program is far below the minimum cost of living. We further decompose the labor supply into agricultural labor supply and non-agricultural labor supply, and find that most of the decrease in labor supply is from agricultural labor supply.