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OCR for page 116
6
The Labor Supply and Retirement
Behavior of China’s Older Workers and
Elderly in Comparative Perspective1
John Giles, Dewen Wang, and Wei Cai
T
here is keen awareness across developed and middle-income coun-
tries of the developing world that increased longevity and aging
populations will place significant and growing burdens on work-
ing age adults in the relatively near future. In the United States and other
economies with pay-as-you-go social security systems, these burdens
will be transmitted through fiscal systems. Even where public transfer
mechanisms are not as important, working-age adults may nonetheless
face increasing burdens associated with supporting the elderly through
both financial and in-kind transfers.2 Increasing the retirement age is
frequently viewed as one feasible means of easing burdens on working-
1 This chapter has benefited from conversations with Fang Cai, Xiaoyan Lei, Philip O’Keefe,
Albert Park, James Smith, John Strauss, Firman Witoelar, Kyeongwon Yoo, Xiaoqing Yu, and
Yaohui Zhao, and also from comments of David Wise, Yaohui Zhao, and other participants
in the Conference on Aging in Asia, sponsored by the U.S. National Academy of Sciences
and Chinese Academy of Social Sciences (Beijing, December 9–10, 2010). We are grateful
for financial support for this work from two sources at the World Bank: the Gender Action
Program of the PREM Network and the Knowledge for Change Trust Fund managed by the
Development Economics Vice Presidency (DEC) of the Bank. The findings, interpretations,
and conclusions expressed in this paper are entirely those of the authors. They do not neces -
sarily represent the views of the International Bank for Reconstruction and Development/
World Bank and its affiliated organizations, or those of the executive directors of the World
Bank or the governments they represent.
2 Lee and Mason (2011) highlight the implications of population aging for sustainability
of public and private transfer systems across Africa, Asia, Europe, Latin America, and the
United States.
116
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117
JOHN GILES, DEWEN WANG, and WEI CAI
age populations, and yet it is likely that exits from productive activity
are shaped by household wealth and individual preferences, as well as
by institutions and policy. Alternatively, continued participation in the
workforce may reflect the ability of workers to learn new skills and to
remain productive into older age. With an eye toward providing insight
into the retirement decision in East Asia, this chapter presents descriptive
evidence on retirement and labor supply patterns in China, Indonesia,
and Korea.
While China’s rapid demographic transition is frequently highlighted
in news accounts because of the sheer size of its aging population, Korea
and Indonesia are also confronting rapidly aging populations.3 In contrast
to most developed countries, however, rural and urban populations face
significantly different retirement systems. Differences across rural and
urban areas in both retirement patterns and access to financial support
are most extreme in China, where most long-term residents in urban
areas have had formal wage employment, retire at a relatively young
age, and receive substantial support from pensions. Rural residents, by
contrast, have lacked pension support and may expect to work in farming
or other agriculture-related activities until relatively late in their lives. 4 In
this sense, urban residents of China with formal sector employment face
retirement decisions that are more similar to those of residents in devel -
oped countries. Residents of China’s rural areas, by contrast, share more
in common with residents of other developing countries, and make labor
supply decisions in the absence of both pension availability and the con -
straint imposed by a mandatory age of retirement from the formal sector.
This chapter brings together information from several data sources to
highlight differences in labor supply of older workers across urban and
rural China, Indonesia, and Korea, and to review patterns and trends in
the context of institutional differences across these three countries and
between urban and rural areas. For perspective on retirement patterns
in East Asian economies, we then place the retirement decision in China,
Indonesia, and Korea in the context of employment patterns of older
3 Recent research by demographers at the U.S. Census Bureau suggests that the old age
dependency rates in 2020 will reach 22, 19, and 13%, for Korea, China, and Indonesia,
respectively, and by 2040 these rates will rise to 53, 40, and 25% (Kinsella and He, 2009).
A preliminary release from China’s 2010 census informs us that 13.3% of China’s popula -
tion is now over 60 as opposed to 10.3% in 2000, while the size of the future workforce has
dwindled, with individuals under 14 accounting for 16.6% of the population, down from
23% in 2000 (National Bureau of Statistics, 2011).
4 New initiatives are currently under way in rural China. A government-subsidized con -
tributory rural pension piloted in 2009 will be rolled out to cover all rural counties over the
next three years. In cities, a new pension scheme, modeled on the rural pension program,
was first introduced in July 2011 with the aim of providing financial protection in old age to
nonworking urban residents and informal sector workers.
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118 AGING IN ASIA
workers in the United States and the United Kingdom. In common with
findings from the retirement literature focusing on developed economies,
the descriptive evidence presented in this chapter is suggestive of the role
that ability to collect a pension (or social security benefit) plays in the
retirement decision.5
Mandatory retirement provisions in each of these East Asian econo -
mies, however, condition decisions of when and how to exit from pro -
ductive activity. While significant numbers of retirees return to work
in self-employed activities or informal work after reaching mandatory
retirement age, the types of work that “retirees” are able to find may be
unattractive for some older workers. Differences in the mandatory retire-
ment age for men and women in China likely contributes to differences
across genders in participation in work later in life, with important con -
sequences for relative pension wealth and relative financial security of
older men and women.
After reviewing descriptive trends, we lay out an empirical model
to examine correlates of labor supply with own and spouse eligibility to
receive a pension, own and spouse health status, and proxies for house -
hold wealth. We next review data sources and correlates of employment
separately for China, Indonesia, and Korea. The chapter presents com -
parative descriptive evidence from East Asia and highlights important
questions on retirement behavior in developing countries that may be
addressed from new panel data initiatives currently under way.
EMPLOYMENT PATTERNS AND
THE RETIREMENT OF OLDER WORKERS
In China, long-term urban residents with formal sector employment
can expect to receive a pension upon retirement, but face mandatory retire-
ment at a relatively young age.6 Where urban employed men confront
mandatory retirement at age 60, women in blue collar occupations are
frequently required to retire at age 50, those in white collar occupations at
5 Blau (1994) suggests that social security eligibility contributes to relatively high exit from
the labor force at age 65; Krueger and Pischke (1992) exploit design features of the U.S. social
security system to demonstrate the effects of benefits on labor force participation. Gruber
and Wise (1999, 2004) present evidence from Organisation for Economic Co-operation and
Development economies of the effects of social security and public pension systems on labor
supply decisions of older workers.
6 We define a long-term urban resident as an urban dweller with an urban (nonagricultural)
residential registration (hukou) status. While considerable efforts have been made recently to
extend social insurance benefits to migrants living in the city, migrants are much less likely
to have employment contracts and to have employers who are making mandated contribu -
tions to pension, health, and disability insurance programs (Giles, Wang, and Park, 2012).
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119
JOHN GILES, DEWEN WANG, and WEI CAI
age 55, with women in some categories (e.g., university professors) able to
work until age 60. Among current retirement-age residents of urban areas,
a large share is receiving relatively generous pension support. By contrast,
rural elderly, who had lower incomes during their working lives and less
accumulated wealth than their urban counterparts (Kanbur and Zhang,
1999; Ravallion and Chen, 2007), do not typically have pension income.
According to the 2005 1% population sample, 45.4% of urban residents
over age 60 report pension income as their most important source of finan-
cial support, but only 4.6% of rural residents note an important role for
pension income. Instead, 38% of rural respondents over age 60 report that
income from their own labor is their most important source of support.7
The stark difference in employment rates of rural and urban resi-
dents reflects differences in both pension wealth and mandatory retire -
ment provisions across urban and rural areas.8 As evident in Panel A of
Figure 6-1, which presents locally weighted regression (LOWESS) esti-
mates of employment rates by age, China’s rural residents are far more
likely to be employed well after the mandatory retirement ages faced by
urban residents. From the China Health and Retirement Longitudinal
Study (CHARLS) pilot conducted in 2008, we note 45% of urban men
aged 60–64 were still employed at least one hour per week (Panel A), but
in rural areas nearly 86% of men in this age range were still working. The
difference in employment of urban and rural women aged 60–64 was
even wider, with only 16% working in urban areas and nearly 57% still
employed in rural areas.
If anything, the CHARLS pilot, with relatively small sample sizes
in urban Zhejiang and Gansu and representative of only two provinces,
may overstate the employment rates of older men and women. Also
presented in Panel A of Figure 6-1 are the 1991 and 2009 estimates from
the China Health Nutrition Survey (CHNS), which show a substantially
lower employment rate of 31% for urban men in the 60–64 age range.
When comparing employment rates across the age distribution over time
using the CHNS, one observes declines for both men and women in urban
7 Additional descriptive statistics on sources of support from the 2005 1% population sub -
sample are reported in Cai et al. (2012) and Giles, Wang, and Zhao (2010).
8 In defining “employment” in this chapter, we include wage employment in the informal
sector, casual work, self-employed activities, and unpaid work in family-run enterprises, all
of which may be important for older workers in these economies. We focus on employment
as opposed to labor force participation, per se, for two reasons. Job search is often not well
documented, and where it is (e.g., the CHARLS data for China), there are a vanishingly
small number of respondents (five in CHARLS) aged 45 and older who are not employed
but report active searches for work. We have no doubt that a search process exists for older
workers who wish to work, but it is difficult to capture, and this is particularly true when
large shares of older workers are self-employed.
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120
Urban Male Urban Female
A.
1 1
.8 .8
.6 .6
.4 .4
Working / Total
.2 .2
0 0
45 55 65 75 45 55 65 75
Age Age
CHNS (1991) CHARLS (2008) CHNS (2009) CHNS (1991) CHARLS (2008) CHNS (2009)
Rural Male Rural Female
1 1
.8 .8
.6 .6
.4 .4
Working / Total
.2 .2
0 0
45 55 65 75 45 55 65 75
Age Age
CHNS (1991) CHARLS (2008) CHNS (2009) CHNS (1991) CHARLS (2008) CHNS (2009)
Urban Male Urban Female
B.
1 1
tal
.8 .8
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Urban Male Urban Female
B.
1 1
.8 .8
.6 .6
.4 .4
Working / Total
.2 .2
0 0
45 55 65 75 45 55 65 75
Age Age
1991 1997 2000 2009 1991 1997 2000 2009
Rural Male Rural Female
1 1
.8 .8
.6 .6
.4 .4
Working / Total
.2 .2
0 0
45 55 65 75 45 55 65 75
Age Age
1991 1997 2000 2009 1991 1997 2000 2009
FIGURE 6-1 Employment rates by age cohort of older workers and elderly in urban and rural China.
NOTE: Employment rates by age cohort are calculated using nonparametric locally weighted regression (LOWESS) with a band -
width of 0.3.
SOURCES: Panel A and B use data from the common provinces surveyed across waves of the China Health and Nutrition Sur -
vey (CHNS) conducted from 1991 to 2009. Panel A also includes data from the 2008 China Health and Retirement Longitudinal
121
Study (CHARLS) pilot.
R02177
Figure 6-1
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122 AGING IN ASIA
areas, but less pronounced declines in employment rates in rural areas. 9
Rural women between age 45 and 65 were somewhat less likely to be
working in 2009 than in 1991, but this does not appear to be true for older
women or for rural men.
One of the sharper changes from 1991 to 2009, as viewed from the
CHNS, lies in the decline in employment rates of women over age 45 in
urban China.10 The decline in older women’s labor force participation
raises an important question for labor research in China: Does the decline
in women’s employment reflect a resurgence of gender discrimination
in post-reform China or the effects of increases in household wealth and
the ability of women to exit the labor force at a younger age? Differences
across genders in mandatory retirement ages likely create an institutional
bias against women’s employment. Even in the absence of discrimina-
tion, the employment decision of older women in urban China reflects a
constrained choice. Women may return to work as consultants or in self-
employed activities after reaching mandatory retirement age, but retired
women are frequently receiving pensions, which raises reservation wages
for new employment. Those urban women uninterested in working in
typical self-employed activities held by blue collar workers (e.g., nannies
or housekeepers) may choose to stay out of work if their pension incomes
are sufficient.
Earlier research on labor force participation in China has noted the
drop in employment rates of urban residents, and urban women in par-
ticular (Cai, Park, and Zhao, 2008; Maurer-Fazio et al., 2011) and attrib -
uted the drop to the effects of state sector restructuring after 1997. After
losing work during state sector restructuring, men, the young, and the
well educated generally faced shorter durations out of work (Appleton
et al., 2002; Giles, Park, and Cai, 2006a; Maurer-Fazio, 2007). Moreover,
some researchers found that a woman’s decision to reenter the workforce
was affected not only by permanent and relatively generous pensions, but
also by family circumstances (Giles, Park, and Cai, 2006b).
Given support available through pensions to relatively young workers
9 We review evidence from the CHNS as it is the publicly available data source that
researchers used (pre-CHARLS) to study labor supply, health status, and retirement of older
workers in China (e.g., Benjamin, Brandt, and Fan, 2003; Dong, 2010). As it is based on a
panel of households that does not enumerate complete information on family members
who have split off of households, one should be concerned that later waves of the CHNS
over-represent those who remain in the households. As we are interested in the over-45
population, this is less of a problem than if we were considering the employment decisions
of individuals who were children in 1991 and likely to have moved out of households.
10 Additional corroborating evidence on the decline in women’s labor force participation
from the census and the China Urban Labor Survey (CULS) can be found in the expanded
working paper version of this paper (Giles, Wang, and Cai, 2011).
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JOHN GILES, DEWEN WANG, and WEI CAI
during economic restructuring and potential biases against hiring dis-
placed workers relatively close to retirement age, one would expect to see
sharp drops in employment of urban women from 1991 to 1997 and 2000,
as is shown in Panel B of Figure 6-1. If reduced employment rates of urban
women over 45 were simply the effect of restructuring in the late 1990s,
however, we would expect that employment of women in the 45–55 age
range would return to higher pre-1997 levels by 2009. The fact that older
working-age women, who have not yet reached mandatory retirement age,
continue to have lower employment rates, even after labor markets tight-
ened during the 2000s, raises the possibility that exits from the labor force
may be a choice facilitated by higher wealth or by increasing demands on
time for nonmarket activities, such as caring for children, elderly, or other
ill family members.
Exits from employment among older workers as they approach pen-
sion eligibility are not unusual in more developed economies such as
the United Kingdom and the United States, but exit rates in the years
before retirement age are not typically as high as one observes in China.
Figure 6-2 highlights differences in employment rates across five countries
and shows that 68 and 70% of women aged 50 to 54 are still employed in
the United States and United Kingdom, respectively. Employment rates of
women in this age range are somewhat lower in urban Indonesia at 63%,
but above the 38 and 30% employment rates witnessed in urban Korea
and China, respectively.11 Relative employment patterns of men in the 55
to 59 age range follow a similar pattern: 68 and 67% of urban men in this
age range in China and Korea, respectively, are employed, while 82% of
urban Indonesia men of this age are still working.
Mandatory Retirement Provisions and Retirement Patterns
Incentives created by gender differences in the mandatory retirement
age may encourage early exits from the labor force by women, particu -
larly for women who face the prospect of a job search in their 40s. Career
changes and job changes later in working life can be difficult in devel -
oped and developing economies alike. As beginning a new job requires
learning processes, technology, and culture of the new workplace, a new
employee will not reach peak productivity in a position immediately
upon being hired. An employer may be less likely to consider hiring a
worker who is close to mandatory retirement age simply because there is
not sufficient time to earn a return on initial training and start-up costs
relative to a younger worker. In the United States, where many workers
11 Note
that this is the urban employment rate for women using the CHARLS sample; in
the CHNS sample, the rate is higher at 42%.
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US
China (CHARLS) Indonesia
124
1
1 1
.8 .8 .8
.6 .6
.6
.4 .4
.4
Working / Total
.2 .2
.2
0 0
0
45 50 55 60 65 70 75 80 85 90 45 50 55 60 65 70 75 80 85 90
Age Age 45 50 55 60 65 70 75 80 85 90
Age
Urban Male Urban Female Urban Male Urban Female
Rural Male Rural Female Rural Male Rural Female Male Female
China (CHNS) Korea UK
1 1 1
.8 .8 .8
.6 .6
.6
.4 .4
.4
Working / Total
.2 .2
.2
0 0
0
45 50 55 60 65 70 75 80 85 90 45 50 55 60 65 70 75 80 85 90
Age Age 45 50 55 60 65 70 75 80 85 90
Age
Urban Male Urban Female Urban Male Urban Female
Rural Male Rural Female Rural Male Rural Female Male Female
FIGURE 6-2 Employment rates by age cohort in China, Indonesia, Korea, United Kingdom, and the United States.
NOTE: Employment rates by age cohort are calculated using non-parametric locally weighted regression (LOWESS) with a
bandwidth of 0.3.
SOURCES: Data from China: 2009 CHNS and the 2008 CHARLS pilot; Indonesia: 2007 Indonesia Family Life Survey (IFLS);
R02177
Korea: 2006 Korean Longitudinal Study of Aging (KLoSA); United States: 2008 Health and Retirement Study (HRS); United
Figure 6-2
Kingdom: 2008/9 English Longitudinal Study of Ageing (ELSA).
landscape
vectors, editable
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125
JOHN GILES, DEWEN WANG, and WEI CAI
start to leave the workforce upon eligibility for Social Security benefits,
difficulties finding new employment among older displaced workers are
well documented. Research using the U.S. Health and Retirement Study
(HRS), for example, has demonstrated that of workers who lose jobs after
age 55, only 60% of men and 55% of women are employed again within
two years, while 80% of nondisplaced workers are employed (Chan and
Stevens, 2001).
In China, and to some extent Indonesia and Korea, a mandatory
retirement age for some occupations and types of employers is even more
binding than Social Security eligibility in the United States. Differences
in mandatory retirement ages of men and women in China may have a
significant impact on how employers view the relative returns to hiring
male and female employees who are in their 40s and older.12
In Korea and Indonesia, retirement ages are not mandated by the law,
but employment laws allow for firms to set mandatory ages, and govern -
ment employees and civil servants face mandatory retirement. After the
East Asian financial crisis in 1997/1998, firms that had not implemented
mandatory retirement started to do so as a way of slowing wage increases
associated with seniority-based wage systems (Cho and Kim, 2005).
The higher employment rates of older urban men and women in
Indonesia and Korea (Figure 6-2) suggest that mandatory retirement from
some occupations and types of employers does not mechanically lead to
permanent exit from productive employment. Existing research on older
workers in both countries suggests that an impending retirement creates
incentives for forward-looking workers to leave employers preemptively,
either to start their own businesses or to start second careers working for
smaller private-sector employers.13
One significant difference across workers in urban and rural areas
of China, Indonesia, and Korea lies in the share of the retirement-age
workforce with access to pensions. In China, evidence from the CHARLS
pilot suggests that, of urban residents aged 60 and older, 79% of men and
54% of women have access to pension support. In urban areas of Indo-
12 Of course, employers may already perceive older workers to be less productive (Chan
and Stevens, 2001; Dalen, Henkens, and Joop, 2010), but this is a problem faced by both older
men and women when looking for work.
13 McKee (2006) finds that in Indonesia, half of government workers move into either the
private sector or into self-employment, and 61% of workers who leave their private-sector
jobs move into self-employment. In Korea, self-employment was one response to lay-offs
from larger employers in the wake of the 1997/1998 financial crisis (Sohn, 2007) and con -
tinues to be an important source of employment for older males (Lee, 2009). Lee and Lee
(2011) note differences in the retirement ages of self-employed and wage-salary earners, but
do not discuss the incentive to move into self-employment ahead of mandatory retirement
among wage and salary earners who wish to continue working.
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126 AGING IN ASIA
nesia and Korea, by contrast, fewer than 35% of men and 15% of women
have access to pensions.14 Another unique feature of pension eligibility in
Korea lies with an imperfect correspondence between mandatory retire-
ment age and age at which pension-eligible retirees may start receiving
pension benefits. The National Pension scheme, the largest of the three
main sources of pensions in Korea, does not begin paying benefits until
age 60, yet a significant share of employees face mandatory retirement
at age 55 (Cho and Kim, 2005). This imperfect correspondence likely
increases incentives for those employees facing mandatory retirement to
look for new career opportunities, including in the self-employed sector.
Across rural areas of China, Indonesia, and Korea, both men and
women remain actively employed until much later in their lives than urban
residents. In rural areas of all three economies, agricultural production on
the family farm continues to be a significant source of employment for
older workers, and this is necessitated by the fact that rural residents tend
to accumulate less wealth over their working lifetimes. In addition, older
workers in rural China and Indonesia are far less likely to have access to
pensions than their urban counterparts. Both the CHARLS and the 2005
Population Census suggest that, of rural residents over 60, roughly 5% of
men and less than 1% of women have pension support. Similarly, in rural
Indonesia, the Indonesia Family Life Survey (IFLS) shows that only 8% of
men and 3% of women aged 60 and older have access to pensions.
Rural Korea is a somewhat different matter. Efforts to bring rural
residents into the National Pension scheme established in 1988 have led to
pension coverage rates in rural areas that do not differ significantly from
urban areas; indeed, 34% of older rural men in the 2006 Korean Longitudi-
nal Study of Aging (KLoSA) wave report receiving pensions. Nonetheless,
the continued labor supply of rural men is viewed as an important factor
contributing to high rates of economic activity among older Koreans (Lee,
2009). In spite of availability of pensions, levels of support are not suf -
ficient to permit retirement of the rural elderly. Lee (2009) suggests that
the out-migration of the young has left elderly who remain behind with
both a lack of young labor and insufficient wealth to cease productive
activity. Given that the history of rapid urbanization in Korea mirrors the
process of rural-to-urban migration taking place in China, one might be
concerned that incidence of delayed retirement of China’s rural farmers,
who are less affluent and have lacked pension support, may follow a
similar pattern to Korea.
14 More specifically, in Korea, 34% of urban men and 15% of urban women have access
to pensions; and in Indonesia, 27% of urban men and 10% of urban women have access to
pensions. Figures on pension coverage are drawn from the 2006 wave of KLoSA and the
2007 wave of IFLS.
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137
JOHN GILES, DEWEN WANG, and WEI CAI
Indonesia (IFLS) Korea (KLoSA)
Urban Rural Urban Rural
Male Female Male Female Male Female Male Female
0.021** 0.075*** 0.023*** 0.032*** –0.058*** –0.051*** –0.015 –0.023*
(0.01) (0.01) (0.01) (0.01) (0.01) (0.01) (0.02) (0.01)
–0.000*** –0.001*** –0.000*** –0.000*** 0.000*** 0.000*** –0.000 0.000
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
–0.009 –0.015** –0.002 –0.004 0.011 0.008 0.031** 0.018*
(0.01) (0.01) (0.00) (0.01) (0.01) (0.01) (0.01) (0.01)
0.000 0.002*** 0.000 0.000 –0.000 –0.000 –0.002** –0.001*
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
–0.238*** –0.246*** –0.132*** –0.126* –0.107*** –0.021 –0.039 0.014
(0.03) (0.05) (0.03) (0.07) (0.02) (0.03) (0.04) (0.05)
–0.119** –0.040 0.103 –0.055 –0.051 –0.040* 0.043 –0.070*
(0.05) (0.04) (0.08) (0.05) (0.05) (0.02) (0.10) (0.04)
–0.004 –0.010*** –0.000 –0.003 0.007*** –0.009*** –0.001 –0.000
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.01) (0.01)
0.002 –0.001 0.002 0.003 0.017** –0.016*** 0.008 –0.024
(0.01) (0.01) (0.01) (0.01) (0.01) (0.01) (0.02) (0.02)
0.011 0.029** –0.003 0.005 0.008 –0.011 0.031 –0.017
(0.01) (0.01) (0.01) (0.01) (0.01) (0.01) (0.02) (0.02)
–0.006** –0.003 0.009* 0.007**
(0.00) (0.00) (0.00) (0.00)
–0.100*** –0.068*** –0.066*** –0.072*** –0.035*** –0.013** –0.066*** –0.008
(0.01) (0.01) (0.01) (0.01) (0.01) (0.01) (0.02) (0.01)
–0.110*** –0.070*** –0.135*** –0.093*** –0.033*** –0.007 –0.036*** –0.026*
(0.02) (0.02) (0.01) (0.01) (0.01) (0.01) (0.01) (0.01)
1,505 2,004 1,613 2,161 3,413 4,356 1,005 1,262
0.328 0.133 0.316 0.154 0.384 0.169 0.247 0.192
OCR for page 138
138 AGING IN ASIA
women. A rural woman married to someone with a pension is likely to
be in a much wealthier household. Pension recipients in rural areas tend
to be retired cadres with much greater lifetime savings. Lack of an effect
of spouse pension eligibility on employment of women in urban China
likely reflects the fact that urban women, who are 5 to 10 years younger
than their spouses, are frequently pension-eligible and already out of the
labor force. A husband’s pension eligibility does not have an independent
effect on labor supply.
Work and Health Status
For those workers in developing countries involved in manual tasks,
such as work in agriculture, we would expect to observe a strong rela-
tionship between health status and labor force participation. From the
results shown in Table 6-2, health status has a far more pronounced effect
on work activities of China’s rural residents than urban residents. A one
standard deviation increase in the Difficulty-ADL z-score is associated
with 7.5% and 7.2% declines in probabilities of working for rural men and
women, respectively, and a one standard deviation increase in the ADL-
Unable z-score is associated with an 8.0% reduction for men and 5.0%
reduction for women. In contrast to China, decline in physical functioning
has a negative effect on work status of men and women in both urban and
rural areas of Indonesia. Given that urban residents of Indonesia tend to
work until much later in their lives, frequently in self-employed activities,
the difference in importance of health status between urban residents of
China and Indonesia makes sense. China’s urban residents retire before
marked declines in physical functioning. Finally, in Korea, poor health
status has a statistically significant negative effect on employment of men
in both urban and rural areas, but the effect is more pronounced in rural
areas where work is likely to be more strenuous.
Family Care Provision and Employment?
One frequently raised hypothesis concerning the exit of older women
from the labor force lies with growing demands for provision of elder care
and care of grandchildren. In order to reduce potential bias, the models
estimated in Table 6-2 use numbers of living parents and grandchildren,
respectively, rather than presence of parents or grandchildren as house-
hold members as covariates. This distinction is important as a significant
negative correlation when an elder is present in the household may lead
to misleading causal interpretations if arrangements for care-provision
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JOHN GILES, DEWEN WANG, and WEI CAI
and older worker labor supply are jointly determined.24 The lack of a
systematic negative relationship between employment of China’s older
urban workers and the number of family members for whom they might
provide care, suggests that the explanation for decline in women’s labor
force participation lies elsewhere. In Indonesia and Korea as well, the
composition of the extended family does not seem to be strongly and
systematically associated with labor supply and retirement decisions.
Interdependence of Spouse Retirement Decisions
In Table 6-2, we present results from estimates of model (2), which
provide insight into the joint retirement decisions of spouses and the role
of spouse health status in retirement. Across rural and urban areas of
China, Indonesia, and Korea, men are more likely to work if their spouses
are working as well. In urban China, where the effect of a spouse working
is associated with a 19.6% and 20.2% higher probability of employment
for men and women, respectively, one policy implication of joint retire-
ment decisions is that efforts to encourage retirement at older ages for
both men and women will likely have a positive impact on employment
of spouses (Falkinger, Winter-Ebmer, and Zweimuller, 1996). Moreover,
in rural China and both urban and rural areas of Indonesia, we find that
a woman’s employment is more strongly correlated with spouse work
status than men’s. In part, this reflects the youth of wives relative to their
husbands and the likelihood that women will choose to retire at roughly
the same time as their older husbands when there are (effectively) no gen-
der differences in mandatory retirement and pension eligibility ages. In
Korea, we observe a positive correlation between employment of men and
the work status of wives in urban areas, but a strong and roughly equal
positive association between the employment of husbands and wives in
rural Korea, which likely reflects joint decisions to retire from farming
among older rural Koreans.
Employment and Spouse Health Status
Inclusion of Spouse Difficulty-ADL and Spouse Unable-ADL z-scores
among covariates in model (2), and presented in Table 6-2, allow us to
shed light on the relationship between spouse health status and respon-
24 Research using census data, which is unable to control for endogeneity of household
composition, provides weak evidence that eldercare and childcare may explain a small share
of women’s exits from the labor force (Maurer-Fazio et al., 2011). Giles et al. (2006b) find
that urban women are more likely to work if they have a college-age adult child, which may
reflect a labor supply response to the sharp increase in postsecondary tuitions after 1996.
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140 AGING IN ASIA
TABLE 6-2 Spouse Health and Work Status in Labor Supply
Decisions of Adults Aged 45 and Older
Linear Probability Models, Dependent
Variable: Worked at Least One Hour per Week
China (CHARLS)
Urban Rural
Male Female Male Female
Pension Eligible –0.134* –0.194*** –0.127* –0.031
(0.08) (0.06) (0.07) (0.12)
Spouse Pension Eligible 0.106 0.087 0.084 –0.136**
(0.07) (0.08) (0.10) (0.06)
Spouse Working 0.196*** 0.202*** 0.121*** 0.193***
(0.07) (0.07) (0.03) (0.04)
Ln(Housing Wealth P.C.+1) –0.062** –0.001 –0.007 –0.026
(0.03) (0.02) (0.02) (0.02)
ADL Z-Score (w/difficulty) –0.061 –0.027 –0.083*** –0.083***
(0.04) (0.03) (0.01) (0.01)
ADL Z-Score (unable) 0.005 –0.005 –0.079*** –0.048***
(0.04) (0.03) (0.01) (0.01)
Spouse ADL Z-Score (w/difficulty) 0.068 0.031 0.031** 0.052***
(0.04) (0.04) (0.01) (0.02)
Spouse ADL Z-Score (unable) –0.016 –0.014 0.003 0.003
(0.05) (0.04) (0.01) (0.02)
Observations 256 236 1,000 1,103
R-squared 0.489 0.482 0.320 0.343
NOTES: These regression models include age, age-squared, years of education, years of ed-
ucation-squared, average education of spouse and adult children, number of living grand-
parents, number of grandchildren, indicator variables for married, for spouse information not
present and for no adult children, and city dummies (China: county; Indonesia: Kabupaten;
Korea: metropolitan city and province). Standard errors in parentheses. * denotes p < 0.1;
** p < 0.05; *** p < 0.01.
SOURCES: Calculated using the 2008 CHARLS pilot (China), 2007 IFLS (Indonesia), and
the 2006 KLoSA (Korea).
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JOHN GILES, DEWEN WANG, and WEI CAI
Indonesia (IFLS) Korea (KLoSA)
Urban Rural Urban Rural
Male Female Male Female Male Female Male Female
–0.235*** –0.240*** –0.129*** –0.136* –0.104*** –0.020 –0.008 0.024
(0.03) (0.05) (0.03) (0.07) (0.02) (0.03) (0.03) (0.05)
–0.104** –0.015 0.110 –0.028 –0.050 –0.037* 0.047 –0.061*
(0.05) (0.04) (0.08) (0.05) (0.05) (0.02) (0.09) (0.03)
0.047** 0.091** 0.088*** 0.231*** 0.054*** 0.025 0.354*** 0.339***
(0.02) (0.04) (0.02) (0.05) (0.02) (0.02) (0.03) (0.03)
0.002 –0.001 0.002 0.003 0.018** –0.016*** 0.015 –0.023
(0.01) (0.01) (0.01) (0.01) (0.01) (0.01) (0.02) (0.02)
–0.101*** –0.069*** –0.063*** –0.071*** –0.034*** –0.012* –0.062*** –0.007
(0.01) (0.01) (0.01) (0.01) (0.01) (0.01) (0.01) (0.01)
–0.107*** –0.070*** –0.133*** –0.093*** –0.032*** –0.007 –0.038*** –0.019
(0.02) (0.02) (0.01) (0.01) (0.01) (0.01) (0.01) (0.01)
0.016 0.005 –0.020** 0.031** –0.016 0.003 0.005 0.008
(0.01) (0.02) (0.01) (0.01) (0.01) (0.01) (0.02) (0.01)
0.030 –0.052 0.008 0.016 –0.011 –0.008 –0.038 0.016
(0.02) (0.03) (0.01) (0.02) (0.01) (0.01) (0.03) (0.01)
1,505 2,004 1,613 2,161 3,413 4,356 1,005 1,262
0.332 0.138 0.330 0.164 0.386 0.169 0.329 0.265
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142 AGING IN ASIA
dent work decisions. Similar to the relationship with own health status,
we find no correlation between spouse health status and employment
in urban China. In rural China, by contrast, increases in the number of
functions that a spouse has difficulty performing (Spouse Difficulty-ADL
z-score) are positively associated with labor supply, suggesting an added
worker effect dominates. A one standard deviation increase in the Spouse
Difficulty-ADL z-score is associated with 3.1% and 5.2% increases that
men and women, respectively, will be employed. The gender difference
in the added worker effect, evident in rural areas of China and Indonesia,
stands in contrast to the results using data from the U.S. Health and
Retirement Study, which suggest that shocks to health of a spouse have
a small positive effect on labor force participation of men and no effect
on women (Coile, 2004a). While results for the United States can be inter-
preted as suggesting that there is little opportunity to smooth income
loss associated with health shocks through the labor market (as Coile
concludes), the employment response for both genders in rural China
and men in rural Indonesia likely reflects both a stronger need to smooth
income and fewer constraints to returning to work on the family farm
than when looking for formal wage work.
CONCLUSIONS
As in other regions of the developing and developed world, popu-
lation aging in China raises the prospect that both formal and informal
mechanisms for supporting the elderly will come under strain over the
next 20 years. In common with Indonesia and other developing countries,
however, China is experiencing population aging at lower income levels
and prior to the extension of pensions to rural residents and to urban
residents in the informal sector. In a sense, China has two retirement
systems: a formal system, under which urban employees receive generous
pensions and face mandatory retirement by 60, and an informal system,
under which rural residents and individuals in the urban informal sector
rely on family support in old age and have much longer working lives.
The retirement patterns presented in this chapter illuminate the employ-
ment context for the decisions that China’s policymakers are currently
facing as they work to extend new pension programs in rural areas and
to the urban informal sector. Several issues warrant consideration when
thinking about employment-related policy for an aging population.
First, as researchers have found in the United States, the United
Kingdom, and Organisation for Economic Co-operation and Develop -
ment (OECD) economies, we observe a strong association between pen-
sion eligibility and exit from productive employment in China, Indone-
sia, and Korea. Moreover, in rural areas of China and Indonesia, where
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JOHN GILES, DEWEN WANG, and WEI CAI
work is physically demanding, we observe a strong correlation between
employment status and physical functioning abilities. In China, this raises
concerns that the “ceaseless toil” characterization of rural elderly lives
(Davis-Friedman, 1991) may remain accurate for a significant share of the
rural elderly population. China’s government has taken steps recently to
improve pension support for the elderly. In 2009, a Rural Pension Pilot
scheme was rolled out, and current plans are to extend it to all counties
before the end of the 12th Five-Year Plan in 2012. The New Rural Pension
Plan is a contributory plan with matched public contributions. Partici -
pants are eligible to receive the pension at age 60 with 15 years of contri-
butions (or an equivalent buy-in).25 Receiving pensions from these sources
would not contain a mandate that the recipient stopped working, but also
the income would facilitate reduced work, whether complete or gradual.
Second, the gender disparity in mandatory retirement and pension
eligibility ages for formal sector workers creates strong incentives for
women to exit productive work at younger ages. While labor force partici-
pation rates of women are similar to those of men at younger ages, they
fall precipitously after age 40. The evidence presented and reviewed in
this chapter suggests that the probability an urban woman is employed
is strongly related to pension eligibility, which also corresponds to work -
ing for an employer enforcing mandatory retirement. Changing the age
of pension eligibility rapidly may cause hardship for those women who
are close to the current retirement age and want to retire, but allowing
women to retire at the same age as their male counterparts would remove
an obstacle that women face relative to men when looking for work later
in life. In Indonesia and Korea, where there is no difference in mandatory
retirement ages for men and women in the civil service or formal sector,
women’s labor force participation also declines after 45, but these declines
are not nearly as steep as those observed for urban Chinese women.
Apart from the disparity between mandatory retirement age for men
and women from government and formal sector employers, retirement
ages are quite low for those with formal sector employment in urban
China. Given the rate of population aging, the argument that mandatory
retirement is important for providing opportunities for younger workers
makes less sense.26 Indeed both macroeconomic and fiscal considerations
warrant encouraging workers to remain employed until older ages. As
noted above, eliminating (or raising) mandatory retirement ages will be
25 Tocover the urban informal sector (the self-employed and workers whose employers
are not participating in employer-based programs), a New Urban Residents Pension Scheme
was announced in June 2011, with roll-out of pilots beginning in July 2011.
26 Gruber and Wise (2010) raise questions as to whether older and younger workers are
substitutes, and the extent to which raising retirement ages could limit opportunities for
new entrants into the workforce.
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144 AGING IN ASIA
less problematic than increases in the age of pension eligibility, but both
are likely to be unpopular because they force changes in expectations
and long-term planning. One politically palatable approach may be to
gradually raise the retirement age in three-month increments. Were such
a reform started during the 12th Five Year Plan period, the retirement age
for men would reach 65 by 2030, though it would take longer at this pace
for full equalization for women. Research conducted in the United States
and Europe, however, suggest that one might provide incentives within
the pension system to encourage retirement later in life.27 Moreover, cor-
relations in retirement of spouses, reflecting coordination of retirement
planning, raises the prospect that eliminating disincentives for women to
remain in the labor force after 50 may encourage delayed retirement of
their husbands as well.28
Among older residents who work, the paper has shown that reduc-
tions in work hours are quite gradual. A key area of employment experi -
mentation in OECD countries is through introduction of flexible work
arrangements, accompanied by removal of mandatory retirement ages
and promotion of “job-sharing,” which has received positive reviews as a
component of labor market reforms in Germany. China could benefit from
assessment of international lessons and expansion of pilots domestically
in these areas.29
While this study has focused primarily on the relationship between
pension eligibility, mandatory retirement, and work activity, the positive
relationship in urban China between educational attainment and contin -
ued employment at the high end of the education distribution (for those
with more than high school education) reflects the possibility that workers
with more skills, or with the ability to learn new skills, may find it easier
to work at older ages. In a review of policies followed in Europe, the
OECD has recognized this phenomenon and noted that support for skills-
upgrading at mid-career can be attractive for employers and employees
alike, and may help to enhance the skills and employability of workers
later in their careers.
27 Coile and Gruber (2007) find that changes in expected Social Security benefits in the
United States have an impact on retirement planning well ahead of retirement. Gustman and
Steinmeier (2009) and Vere (2011) find that changes in social security rules or benefits help
to increase the labor force participation of older workers, and may even lead to increases in
hours worked “after retirement” in one’s 70s. Robalino et al. (2009) suggest that changes to
social insurance policies in Brazil could have an important impact on the labor supply and
retirement decisions of older workers.
28 Falkinger, Winter-Ebmer, and Zweimuller (1996) find that increasing the retirement age
of women through social security reforms may lead to longer working lives for men as well.
29 OECD (2006) provides a useful review of policies and approaches to reducing barriers
and disincentives to continue working.
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