Despite the lack of electoral accountability, China has built an expanding welfare system that is set to include most citizens. Why does China defy the conventional prediction of an exclusive autocratic welfare state? This paper looks at the critical time when China first established its social security system in the 1990s and argues that the state adopts a “demand-driven strategy” where the redistribution effort varies with the expected collective action of economic losers. Analyzing an original granular county-level dataset of China’s laid-off workers and social security taxation, the paper finds that a group of newly-emerged economic losers, precipitated by state policy, drives the local states’ efforts to redistribute. In particular, the number of laid-off state-owned enterprise workers explains 46% of the variations in social security collection among non-state-owned enterprises. Instrumental variable estimation, with legacy state-owned enterprises established in historical contingencies as the instrument for laid-off workers, shows consistent results. Further analysis on mechanisms demonstrates that layoffs lead to an increase in SOE protests, which in turn foster greater redistribution.

In China's labor market, there is a phenomenon that enterprises choose whether to provide "social insurance and housing fund" to laborers autonomously. This paper use micro-data from two leading Internet recruitment platforms and empirically finds that in a labor market with double-side information asymmetry, "social insurance and housing fund" is not only a cost but also a signal. Providing workers with "social insurance and housing fund" can both send a signal of stable operation to the labor market and identify high-quality workers for enterprises. With an instrument variable of local average social security payment rate, this paper excludes the endogenous effect of labor supply on wages while the signaling effect above is still significant. In addition, "housing fund" has a stronger signaling effect than "social insurance", and the strength of the two signaling effects is affected by the scale of the enterprises and the level of local payment rates. This paper also introduces a theoretical framework of two micro-mechanisms — signaling and screening — into the analysis. In terms of policies, this paper proposes to strengthen the information disclosure and the propagation of social security payment, and further reduce the financial burden of enterprises.

This paper studies how a potential policy change that raises women’s social security eligibility age from 50 to 60 would affect women’s employment, human capital, and earnings in China. I develop a dynamic model of female labor supply, featuring voluntary retirement; occupational choice; human capital accumulation contingent on occupation, age, and employment status; and child care using time inputs from parents, grandparents, and formal child care from the market. I estimate the model parameters by matching moments on employment, wages, and the time allocation of child care from micro data in China. The policy counterfactual raising women’s social security eligibility age yields two main findings. First, the policy change leads to only a moderate increase in aggregate labor supply because it affects the employment of old and young women in opposite directions. The reduction in social security insurance encourages women above the age of 50 to supply more labor. Yet low-skilled young women with children reduce their labor supply in response to the children’s grandmothers working more and providing less child care. Second, since human capital accumulation is faster on the earlier career path rather than later, the reduction in early career employment leads to persistent losses in human capital and earnings for low-skilled women.