«D I R E C T I O N S I N D E V E LO P M E N T Human Development Public Disclosure Authorized The Elderly and Old Age Support in Rural China Challenges ...»
Second, rural households are to some extent “permanent income savers.” If income remitted from a migrant family member is viewed as transitory (or at least less permanent), then one may expect households with migrants to save remittances. Third, migration may be driven in part by credit market failures, and migrant family members may save migrant earnings in anticipation of investing in housing or durable goods. In this 76 The Elderly and Old Age Support in Rural China case, migration and saving decisions are made jointly, and one would expect to see higher saving among families with migrants.3 From 2003 to 2006, rural households with migrants had higher saving rates than those without migrants. Figure 4.5 shows the saving rates for rural households with and without migrants. In 2003, the saving rates of rural households with and without migrants were 37.4 percent and 30.8 percent, respectively, a difference of 6.6 percentage points.
The largest difference between rural households with and without migrants was 13.0 percentage points in 2005.
Saving rates of rural households with elderly are also higher if they have migrants. As shown in figure 4.6, the saving rates of households with elderly members that have migrants are higher than those without migrants, and the difference between the two rates fluctuates over time.
Figure 4.5 Saving Rates of Rural Households with and without Migration, 2003–06 saving rate (%) Figure 4.
6 Saving Rates of Rural Households with Elderly, with and without Migration, 2003–06 saving rate (%) Source: RCRE, MOA, Repeated Household Data, estimated by Cai, Giles, and Wang 2009.
In 2003, the saving rate of rural households with elderly and with migrants was 32.3 percent, 5.3 percentage points higher than those without migrants. The gap between saving rates in 2004 was much smaller at
0.8 percentage points; but by 2005, it was 19.0 percent before falling again to 6.2 percent in 2006.
As might be predicted, saving rates change over the life cycle.
Figure 4.7 shows life-cycle patterns in the saving decisions of rural households and the resulting nonlinear relationship between saving rates and age.
4 Although saving rates were higher for all ages in 2006, life-cycle patterns over the age distribution were similar. In 2006, the saving rate decreased from age 20 to 40, but increased from 40 to 55, and then steadily declined with age after 55. High saving rates among the young in urban China are frequently explained by the high cost of 78 The Elderly and Old Age Support in Rural China Figure 4.7 Saving Rates of Rural Households, 2003 and 2006 saving rate (%) Source: RCRE, MOA, Repeated Household Data, estimated by Cai, Giles, and Wang 2009.
housing and imperfect credit markets, and housing and durable goods costs likely contribute to high savings among the rural young as well (Chamon and Prasad 2010). Marriage-market competition in a world of rising male-female sex ratios may exert further upward pressure on housing prices in this environment and create further incentives for saving (Wei and Zhang 2011). The decline in saving rates among the old is consistent with standard life-cycle theory, although on average, saving remains positive well into old age.
As shown in figure 4.8, the saving rate of rural households with migrants declines little with age, but an earlier and more pronounced decrease occurs for elderly households without migrants. Across the age distribution, saving rates and evidence of life-cycle saving differ considerably across households with and without migrants. The higher saving rates of elderly with migrant family members likely reflects less dissaving in the face of extreme shocks to health or earning and is likely related to the perceived transitory nature of remittance income.
The difference in saving behavior between rural households with and without social insurance is significant and consistent over time— households with social insurance have notably lower saving rates.
Figure 4.9 shows the saving rates of rural households with and without Saving Decisions in Rural China 79 Figure 4.
8 Saving Rates of Rural Households with and without Migrants, 2006 saving rate (%) Source: RCRE, MOA, Repeated Household Data, estimated by Cai, Giles, and Wang 2009.
Figure 4.9 Saving Rates of Rural Households with and without Social Insurance Source: RCRE, MOA, Repeated Household Data, estimated by Cai, Giles, and Wang 2009.
80 The Elderly and Old Age Support in Rural China social insurance from 2003 to 2006.5 As discussed earlier, the provision of social insurance can make individuals and households feel more secure about spending, which helps reduce household savings. Therefore, it is not surprising that rural households receiving social insurance benefits have a lower saving rate compared with those without benefits.
The evidence from the quintile income groups further confirms that rural households with social insurance save less than those without coverage. In figure 4.10, the highest income group has the greatest saving rate: rural households without social insurance save 51.3 percent of household income, whereas those with benefits save 42.6 percent of household income. However, the largest difference in saving rates lies in the lowest income group, which has a 23.8 percentage point difference in saving rates between rural households with and without social insurance participation.
Conclusion Saving rate patterns of rural households differ significantly over the age distribution, by migration status of family members and by social security coverage. Rural households without elderly members have higher saving Figure 4.10 Saving Rates of Rural Households with and without Social Insurance, 2006, by Quintile saving rate (%) rates, although the gap is narrowing, and those with migrant members have higher saving rates than those without. As might be expected, the saving rate declines with age after 55, but the average saving rate is always positive, even into advanced old age. Little comparable decline occurs in saving rates in elderly households with migrants, which likely reflects the perceived transitory nature of remittance income. The difference in saving behavior between rural households with and without social insurance benefits is significant and consistent over time, which is further verified when findings are broken down by income quintile.
Saving provides an informal mechanism for individuals and rural households to cope with uncertainty and risk. As discussed in this chapter, the high saving rate in China is probably related to increasing risk and uncertainty facing households during economic transition. Given that the Chinese government strongly emphasizes the welfare of ordinary people as it tries to rebalance the economy, recent initiatives to expand the rural safety net and social insurance system are welcome instruments not only for supporting household welfare, particularly for elderly households, but also as economic tools to help reduce precautionary motives for saving and to boost consumption.
1. Wei and Zhang (2011) provide compelling evidence that China’s high saving rate may be driven, in part, by rising male-female sex ratios. As the sex ratio rises, Chinese parents with a son raise their savings in a competitive manner to improve their son’s relative attractiveness for marriage. The pressure on savings spills over to other households.
2. The analysis draws on a different subsample of eight provinces, including Anhui, Chongqing, Guangdong, Jiangsu, Jilin, Shandong, Shanxi, and Xinjiang, with 4,100–4,600 rural households surveyed annually between 2003 and 2006.
3. Alternatively, a data issue may be driving the observation: the RCRE household survey asks about the earnings and expenditures of migrants as part of the household survey. If expenditures of migrants are not observed as well as incomes, this exclusion will lead to mechanically higher saving rates among migrant households, although net income for migrants is used in this analysis.
4. This measurement uses a nonparametric locally weighted regression of saving rates against the age of the household head.
5. Household expenditures for insurance (including asset insurance, life insurance, production insurance, education insurance, and pension insurance) are used to identify whether rural households have social insurance.
82 The Elderly and Old Age Support in Rural China References
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Evolution of the Rural PensionSystem in China
The previous chapters of this book examined various aspects of the welfare of the rural elderly in China. On the basis of findings on poverty and vulnerability, sources of support for the rural elderly, demographic trends, and saving behavior, the rural poor clearly are unusually subject to poverty and are also highly dependent on private sources (primarily their own labor and family support) to sustain adequate levels of welfare in old age. The analysis also showed that a number of trends suggest that the challenges of sustaining rural welfare may increase in coming years, even in the face of continued solid growth. The evidence thus supports a rationale for public intervention through transfers for the rural elderly, which should not crowd out private sources of support too significantly.
A further important dimension in the discussion of public intervention in support of the rural elderly is the broader desire of Chinese policy makers to rebalance their economy toward greater emphasis on domestic demand, a shift that may be inhibited by high levels of precautionary This chapter was prepared by Philip O’Keefe, based on a background study for this report by Wu (2009), which includes a literature review, a policy assessment, and detailed reviews of current rural pension pilots in selected cities (Beijing, Baoji in Shaanxi Province, Yantai in Shandong Province, and Suzhou in Anhui Province).
86 The Elderly and Old Age Support in Rural China
saving among both the rural working-age rural population and the elderly.
In that light, a macroeconomic rationale may also underlie recent government efforts to expand public transfers for the rural elderly, thus helping reduce overly high levels of saving and freeing private resources for consumption during working life and in old age.