Pension gap between the Chinese public and nonpublic sectors： evidence in the context of the integration of dual-track pension schemes

Abstract

Using the 2013, 2015 and 2018 waves of China Health and Retirement Longitudinal Study, this paper analyzes the pension gap between the public and nonpublic sectors and its evolution in the context of the 2014 reform, which is designed to integrate the dual-track pension system. Applying the decomposition method based upon unconditional quantile regressions developed by Firpo et al. (2009), we find that public sector retirees enjoy pension advantages over their counterparts in the nonpublic sectors across the distribution, ceteris paribus, and the advantage decreased between 2013 and 2015, then increased between 2015 and 2018 after the reform. Both the explained and unexplained differential have significantly contributed to the sectoral pension gap over time. Comparing 2015 with 2018, the contribution of the unexplained differential increases substantially across the distribution. This is partly due to the transitional arrangements that have been made to secure the pension income levels of public sector retirees, which left the fairness of the pension system unimproved after the reform. The advantages of public sector retirees in terms of human and political capital over their peers in nonpublic sectors serve as the main contributors to the explained pension gap, thus indicating that the differences in individual investment in the early stages of the lifecycle should be considered when explaining the sectoral pension gap.