Abstract
The implementation of China's Social Insurance Law initiated changes in the management and collection of social insurance premiums. The effect of this collection related to labor cost and employee welfare on innovation remains unexplored. We use a difference-in-differences model based on unique data in China and reveal that social insurance premiums collection following the implementation of Social Insurance Law appears to significantly contribute to innovation. Both labor cost and employee welfare effects are inducement mechanisms. Additional tests suggest that the relationship between Social Insurance Law and innovation is more pronounced for state-owned enterprises, firms with a superior legal environment, and firms in more competitive industries. The above findings offer new insights into the real impact of the social insurance system reform on advancing China's economic development and suggest strategies to drive innovation through the implementation of the Social Insurance Law.
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