Costs or signals: The role of “Social insurance and housing fund” in the labor market — Evidence from recruitment platforms

Abstract

In China's labor market, enterprises are allowed for some flexibility in deciding whether to provide “social insurance and housing fund” to laborers. This paper uses micro-data from two leading Internet recruitment platforms and finds that in a labor market with double-side information asymmetry, “social insurance and housing fund” serves as not only a cost but also a signal. Providing workers with “social insurance and housing fund”, enterprises send a signal of stable operation to the labor market while identifying high-quality workers for enterprises. We further construct an instrument variable (IV) of local average social security payment rate, and show that the signaling effect remains significant after accounting for the endogeneity issue using IV regressions. In addition, “housing fund” has a stronger signaling effect than “social insurance”. Heterogeneity analysis indicates that the strength of the two signaling effects is affected by the scale of the enterprises and the level of local payment rates. A theoretical framework capturing two micro-mechanisms — signaling and screening — is developed to fit our empirical findings. This paper provides explicit policy implications. It is suggested to strengthen the information disclosure and the propagation of social security payment, and further reduce the financial burden of enterprises.