Economic Restructuring and Retirement in Urban China

Abstract

In its gradual approach to economic transition, China deferred the difficult process of restructuring state owned enterprises (SOEs) until the mid-1990s. When restructuring of large scale SOEs accelerated after 1997, China witnessed sharp declines in the employment of urban residents. While some dislocated state sector workers made a transition to work in the non-state sector, large shares of laid off workers spent long periods unemployed or out of the labor force. Much of the transition out of the state sector occurred through early retirement and exit from the labor force of older workers. While earlier work suggested that the sharp decrease in labor force participation of older women is driven by reappearance of discrimination in the labor market, analysis of reemployment decisions suggests that exit from the labor force reflects a choice. Women exited the labor force in great numbers after 1996, but women with adult children of college age are 60 percent more likely than other women to be re-employed within a year. We also find weak evidence that women who provide care for elderly family members are less likely to be employed. An increase in the labor supply of older women after 2004, however, suggests that the exit of older women from the labor force between 1996 and 2002 was driven primarily by generous early retirement pensions offered during the process of restructuring.