Children, support in old age and social insurance in rural China

Most people in rural China have no plans for retirement other than the ingrained Chinese tradition that children care for old parents. Actually there are also no sources of social support such as social old-age insurance to rely on in rural people’ old age for a long time in China. In 1992, a social old-age insurance program, rural pension program, was initiated by the Chinese government to firstly establish a social security system in China’s rural area. The rural pension program experienced rapid development in the beginning years but grounded to halt after 1998. Since either children or pension program provides support for elderly, we expected that these two can be viewed as substitutes to some extent. Using data from China’s 2005 mini-census, we find that rural people who have at least one son are less likely to participate in pension program and each additional son and daughter both decreases their participation rate. Moreover, the effect of an additional son is much larger than that of an additional daughter. In addition, both evidence from mini-census and China Health and Retirement Longitudinal Study show that peasants accessing to pension are less likely to rely on their children for support in old age. These findings suggest that demand for children, especially for sons are partly driven by concerns relating to care in old age; children and formal social old-age insurance are substitutes for support in old age. We then expect that implementation of social old-age insurance may mitigate rural people’ demand for children, especially sons and thus correct China’s severe sex ratio bias to some extent. We test this hypothesis using the difference-in-differences strategy, and find that increase of sex ratio at the region level slowed down after the implementation of the rural pension program. Overall, our empirical analysis in this paper implies that sex ratio bias is partly due to demanding for sons for support in old age and carrying out social old-age insurance in rural China are helpful in mitigating demand for children and correcting sex ratio bias.