Average Wage,Pension Contribution And The Crowding-out Effect Of Formal Employment

In the recent years,the average wage increases with a high rate,even exceeds the growth rate of disposal income or GDP in some provinces.The highly growth of a’verage wage not only measures the wage level of formal employment but also increase the upper-lower limit line of the endowment insurance base.Meanwhile,the deficit of pension personal account becomes increasingly serious,and endowment insurance funds do not always cover the charge and the current balance is inadequate.As the endowment insurance becomes increasingly severe,there is a decreasing trend of the growth rate in the number of insured employees,which makes the pension dependency ratio begin to decline and increases the payment burden of insured employees.Under the circumstance of heavy payment burden,the increase of average wage does not only finance ’for pension,but also aggravate the burden of enterprises and workers,which may crowd out the formal labor at last.This article summarized the domestic and overseas research on the effect of endowment insurance,found out that many developed countries and developing countries will crowd out jobs.Some study found that in the developing countries,endowment insurance expends the burden and crowds out formal employment.Formal employment are tend to turn out for the informal employment,some even withdraw from the labor department.In consideration of the different characteristics of formal and informal employment in China,we choose formal employment as the research object and use the average wage to measure the pension burden of enterprise and worker.With the growth average wage,formal employment burden a lot from the endowment insurance,which have adverse impact on the labour market supply and demand and finally affect the employment scale.Based on the 2004-2014 panel data of 31 provinces and regions,we set up fixed effects regression model with instrumental-variable to analyze the crowding-out effect of average wage on formal employment scale.Considering the endowment "double track system" before 2015,workers in agencies and institutions do not pay the pension.So we use the average salary of agencies and institutions as the instrumental variable of model,which meets the requirements of the exogenous and correlation.The regression results show that the growth of average wage will actually crowd out the regular employment of the enterprises,and every one percentage point of the growth of average wage will decrease the regular employment of enterprises by 0.6606%.Considering the difference of the pension balance and the population structure in different provinces and regions,this paper further explores the difference of crowding-out effect in different provinces.We divides 31 provinces into two sets of data whether pension fund can support for more than 10 months.By the method of fixed effect regression with instrumental variable,it shows that in the provinces where the pension can be support less than 10 months,the average wage have greater squeeze effect on formal employment.The average wage increased by 1%,formal employment of enterprises fell 1.1645%.In the provinces where pension can support more than 10 months,the average wage increased by 1%,formal employment of enterprises fell 0.504%.The main conclusion is that the annual growth of average wage will aggravate the burden of the endowment insurance payment of enterprises and workers,thus crowding out the formal employment scale.Moreover,the employment crowding-out effect is more obvious in the provinces where the pension balance is scarce.The main innovation of this paper is that,most domestic and overseas literature take the endowment insurance contribution rate as the burden of payment,this article takes into account that the nominal contribution rate of the endowment insurance in our country is stable recently,therefore we use the average wage to measure the pension burden.The paper also notes that China has not yet achieved national co-ordination,mainly by provincial-level co-ordination,we have studied the employment crowding-out effect in different provinces.There are still some deficiencies in this paper,the endowment insurance in most provinces of China is mainly based on the city and county level.Limited by the availability of data,the paper only establishes the model of the provincial panel data,it can reflect the actual situation to a large extent,but there still exist some limitations in this research.