The effect of the new cooperative medical scheme on rural labor supply in China

Abstract

In 2003, China launched the New Cooperative Medical Scheme (NCMS), a public healthcare plan targeting rural households. While the literature mostly considers the impact of NCMS coverage on health outcomes, we investigate potential impacts on labor supply and household savings levels. To mitigate endogeneity bias driven by households self-sorting into NCMS coverage, we use panel data spanning two decades to estimate difference-in-differences and instrumental variables (2SLS) models. We find NCMS coverage reduced aggregate labor supply by roughly 8%. Consistent with Borjas (2003), we find the NCMS impacts are larger for higher income households.