Analysis Of The Crowing-out Effect Of Social Security Contribution To Labor Demand

Relation with a country’s national economy developing and welfare, the social security system is to protect residents’ rights and promote economic development and social stability. China’s social security system was first built in 1951, and provided workers with pension, medical insurance, disability and maternity protection in order to meet the requirements of the Planned economic system. However, with the collapse of the Planned economy and the rise of the Market economy, social security system began to reform. The issues related to design and management of contribution were gradually appeared during the reform and development. Among them, contribution rate attracted wide discussion. The statutory contribution rate of China is over 40% of the total wages, which is not only higher than the payroll tax in most countries of the world, but also much higher than the maximum contribution rate that the business can afford, it means the social security contribution of enterprises is overburdened. Since the social security contribution are an important part of labor cost, and is depends on the total amount of wages and contribution rates, when the total wages is certain, high social security contribution rates will increase labor costs, and then increased the burden of enterprises, thereby, it will affect the corporate decision-making about labor demand. In the short term, companies will reduce its labor demand in order to reduce the labor expenses, but in the long term, if the contribution rate remains high, companies will narrow production scale or replace labor with capital, and the final result is still to reduce its labor demand, so the labor demand is crowed out.With provincial panel data from 2009 to 2013 and the panel data of listed companies, the paper use statistical analysis, comparative analysis and regression analysis to discuss how the country’s social security contribution and contribution rate impact on labor demand, and the degree of the influence. In the process of empirical analysis,the sample panel data is grouped according to regions, industries, company characteristics and labor characteristics, so that the results of the regression analysis can be contrasted. The results based on macro data analysis shows that the social security contribution rate increased by 1%, national labor demand and the labor demand of eastern region will significantly reduce the 4.95% and 6.92%, but the effect to other individuals in same groups are not statistically significant. In industry groups, the labor demand of the secondary industry and the labor demand of the tertiary industry can be significantly crowded out 5.58% and 2.6% when the social insurance contribution rate rise 1%. Then the regression results of gender, age and education level grouping show that crowding-out effect to the labor demand for men, the labor demand for under 34 years old and the demand for education below high school is slightly higher than the another individual in corresponding group, it shows that the contribution rate increased by 1%, these three types of demand will reduce 3.02 percent, 3.07 percent and 3.05 percent respectively. Analysis results based on micro data, we learn that the contribution rate increased by 1 percentage, the employment demand of listed companies will be significantly reduced 1.6 percentage. And among these listed companies, labor demand of private enterprises will significantly reduce the 1.2 percentage point following the one percentage risen in the contribution rate, but the decrease of the demand of state-owned enterprises is not significantThe paper is divided into six parts altogether. The first chapter is an introduction. It mainly introduces the background and significance of the topic, combing the findings of scholars, and explains the research methods as well as the structural arrangements, innovation and deficiencies of this paper. The second chapter provides an explanation about meaning and influencing factors of labor demand and China’ trends of labor demand in recent years. The third chapter introduces the theory of social security tax as well as the generation, development and problems of China’s social security contribution. Chapter IV analyzes the crowding out effect of the social security contribution to labor demand. Firstly, it describes the relationship between social security contribution and labor demand, and then explain the regression model, the variables and data sources and so on. Chapter V is the results of empirical analysis. The analysis is based on the groups of industries, regions, companies and different labor characteristics(including gender, age and education). And chapter VI is the conclusion of this article. The results show that the crowding-out effect to labor demand is existed, and whether the crowding-out effect is significant or not and the degree of the crowding-out effect to labor demand is certain different when the regions, industries, business type and characteristics of the labor force are different. If the excessive burden of social security contribution can’t be relief, employment will be subject to a severe challenge in the case of the social security system increasingly legalization.