The Dynamics of Social Assistance in the Informal Economy: Empirical Evidence from Urban China

Abstract

AbstractThis article contributes to the growing body of research on social assistance (SA) dynamics by analyzing patterns of SA receipt in China, a middle-income country with a large informal employment sector. Using national low-income household survey data and event history analysis, this study explored the mechanisms underlying exit from Dibao (formally known as Minimum Living Security) and changes in exit probability over time. We found that in the context of an informal economy, the ‘explicit’ change of individual characteristics and employment structure decisively affects receipt duration on the micro and macroeconomic levels, respectively. On the policy level, affected by the informal employment structure, employment services tend to be of low quality and fail to promote Dibao exit effectively. Although the specific Dibao payment strategy, which is used to address the difficulty in means tests, largely curbs the risks of declining working motivation, it considerably increases the possibility of prolonged Dibao use. With this systemic influence of informal employment, a unique pattern of SA receipt characterized by the combination of long-term use and a nondecreasing hazard rate has developed in China.