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«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 ...»

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of labor on extended family plots, are difficult to pick up in surveys, yet such transfers often occur both within and across households. Changes in living arrangements reflect the increasing wealth of families. With increasing resources, coresidence may be unnecessary in caring for the elderly.

Within villages in rural areas, elders and adult children are typically in the same small group (a subvillage administrative unit) and live in proximity to one another. Given increases in housing wealth in rural areas since the mid-1980s, the trend toward nuclear families may signal a wealth effect independent of the traditional value of providing support and care to elderly parents.

In addition, the share of rural elderly with an adult child living nearby was actually higher. A more important factor may be the proximity of adult children—and not whether they coreside. Figure 3.2 summarizes the living arrangements by age cohort from the 2004 Research Center for Rural Economy (RCRE) supplemental survey and includes information on children living within the same village as their elders. Although coresidence with adult children was less than 60 percent during the 2003 reference period among those 60 to 70 years of age, more than half the elderly living alone or with a spouse in this age range had at least one 50 The Elderly and Old Age Support in Rural China Figure 3.2 Living Arrangements of China’s Rural Elderly, by Age Source: RCRE 2004.

adult child living in the village.7 This finding suggests that even though coresidence was well below the levels of the 1930s, adult children were still potentially available to provide care.

Evidence suggests that migration decisions of adult children are influenced by the well-being of elderly parents. Decline in coresidence reflects a decline in support for the elderly only if it is associated with increased abandonment of the elderly. The rural elderly may have sufficient support if they are receiving transfers from local or migrant adult children. Giles and Mu (2007) explore this possibility by conducting separate analyses using two different data sources. They find a significantly lower probability that a son will work as a migrant when a parent is seriously ill. Although parental illness has a statistically significant effect on migration, it does not completely drive the decision to return from migrant destinations. Depending on the data set and methodology, the effect of illness varied from a 15 percent to 26 percent reduction in the probability that a son would be employed as a migrant, and this effect was reduced if other siblings remained behind in the village. Although this level of responsiveness to elderly Sources of Support among the Rural Elderly 51 illness is significant, it is not absolute. Moreover, elderly who are relatively healthy may have a much lower standard of living if nonresident adult children who are migrants are less likely to make transfers to their parents than adult children who live nearby. In light of these findings, the next section examines how private transfers respond to low income of the elderly, including whether transfer responsiveness differs with migrant children.

Do Private Transfers Respond to Income of the Elderly?

Two important reasons exist to examine the responsiveness of transfers and transfer levels. First, as China rolls out its national rural pension program, concerns may arise about formal support for the elderly crowding out transfers from private sources. Second, although the findings in chapter 2 suggest that elderly households with migrant family members may be less likely to fall into poverty, those findings are average effects and do not explore how transfers vary with pretransfer household income, nor do they consider the distribution of transfers and the risks that the elderly may fall into poverty if transfers do not materialize.

Much early research on intrafamily transfers used data from developed countries and focused on efforts to distinguish whether transfers were motivated by altruistic or exchange motives.8 This distinction is important because it has implications for how transfers respond to income received by elderly households. If an altruistic motive dominates, family members outside the household may respond to reduced levels of income by providing an offsetting transfer. This possibility may mean that any increase in income—a pension payment, for example—would lead to an offsetting reduction in private transfers into the household. If the altruistic motive dominates, private transfers to elderly family members will likely fall as public transfers increase (private transfers are “crowded out”).

In contrast, when exchange motives or other motives are more important, one is unlikely to observe a significant reduction in such private transfers and crowding out is less of a concern.

This section shows that (a) the risk of private transfers being insufficient to prevent elderly poverty has increased in recent years and (b) public transfers (for example, pensions or dibao) are unlikely to crowd out private transfers to the rural elderly even at very low levels of income.

Thus, the receipt of pensions or targeted public transfers would likely improve the welfare of the rural elderly. Moreover, when transfer behavior from an early period (1995–99) is compared with that of a later 52 The Elderly and Old Age Support in Rural China period (2000–03), a notable increase is seen in the risk that transfers to low-income elderly will be insufficient to prevent them from falling into poverty.9 Second, although migrants respond to their elderly parents’ low income by transferring more income, the wide confidence interval in predicted levels of transfers implies that some elderly are at risk of falling into poverty.

Private transfers respond to low pretransfer income regardless of the migrant status of adult children. Figure 3.3 shows that transfers from family members decline in response to increases in the income level of the elderly household. It also shows how transfers respond to pretransfer income levels for elderly households that have migrant children and those that do not. To highlight changes in transfer responsiveness over time, the results are shown separately for the periods 1995–98 and 2000–03. The

key findings are as follows:

• For both periods and for households with and without migrant adult children, net transfers fall sharply as rural elderly household income rises. The findings suggest that private transfers continue to respond to the low income of elderly parents regardless of migrant status.

• For the period 1995–98, transfers to elderly households were more responsive to income at low levels if the elderly had migrant children than if they did not. This finding suggests that, in this earlier period, public transfers to the elderly with migrant children would have crowded out more private transfers at very low levels of income.

However, at income levels near the poverty line, the transfer derivative was −0.5 for elderly households regardless of whether they had migrant children. Thus, even in the 1990s, one would not expect private transfers to be crowded out completely by payments from a public transfer in elderly households already at or above the poverty line.

• By 2000–03, private net transfers into households with elderly members were less responsive to income for households with migrant children. This decline in transfer responsiveness holds for the significant share of households with incomes ranging from half the poverty line to twice that value. It also indicates that concerns about public transfers crowding out private transfers are becoming less relevant over time.

Indeed, the decline in responsiveness of transfers to low income raises the possibility that the elderly may be more exposed to the risk of poverty with increases in out-migration of adult children and the increasing likelihood that migration of children is permanent.

Sources of Support among the Rural Elderly 53 Figure 3.3 Net Transfers Received by Rural Elderly, by Migrant Status of Adult Children

–  –  –

Sources: Giles, Wang, and Zhao 2010, estimated using data from RCRE Rural Household Surveys for 1995–2003 from Anhui, Henan, Jiangsu, and Shanxi provinces and the matched RCRE 2004.

Note: Vertical lines indicate multiples of a nutrition-based poverty line, which is equal to 875 RMB yuan per capita in 2000 RMB.

54 The Elderly and Old Age Support in Rural China To highlight how transfers respond to income at different points in the income distribution, table 3.3 reports the transfer response at different multiples of the poverty line. As the table shows, the likelihood of transfers falls notably in both periods for elderly households with and without migrant children as the income of the elderly household increases.

Thus, during the period 1995–98, elderly households with migrant family members appear very unlikely to have income per capita below the poverty line after private transfers are included in household income.

To assess the risk that private transfers are insufficient to keep the elderly out of poverty, figure 3.4 shows that the combinations of pretransfer income and private transfers are sufficient to keep elderly households above the poverty threshold. That threshold is represented in figure 3.4 as the straight line running from the y-axis when pretransfer income is zero to the point on the x-axis where net transfers are −500 renminbi (RMB) per capita and the household pretransfer income is just enough to keep the household out of poverty. Panels a and b of figure 3.4 show the predicted range of net transfers for different levels of pretransfer income from 1995 to 1998 for households without and with migrants, respectively. Comparing those two figures, more of the lower bound of transfers lies below the poverty threshold for households without migrant family members.

After 2000, elderly households with migrant family members are at greater risk of falling into poverty. From panels c and d of figure 3.4, one can clearly see that households with incomes of less than half the poverty line are more at risk, for which transfers will be insufficient to raise total income above the poverty line. The lower responsiveness of transfers to

–  –  –

1,500 1,500

–  –  –

Sources: Giles, Wang, and Zhao 2010, estimated using data from RCRE Rural Household Surveys for 1995–2003 from Anhui, Henan, Jiangsu, and Shanxi provinces and the matched RCRE 2004.

Note: Vertical lines indicate multiples of a nutrition-based poverty line, which is equal to 875 RMB yuan per capita in 2000 RMB.

56 The Elderly and Old Age Support in Rural China low incomes suggests that a noncontributory pension or other support mechanism is unlikely to crowd out private transfers.

Evidence summarized in table 3.4 also suggests that elderly households with pretransfer income per capita below one-half the nutritionbased poverty line are at particular risk of falling into poverty. Table 3.4 summarizes the range of transfers at five multiples of the poverty line.

When considering the results from the four-province analysis of transfers, one should remember that although poorer areas of Anhui, Shanxi, and Henan are included in the analysis sample, these provinces are generally considered middle income, and Jiangsu is included among upper-income coastal provinces. If transfer responsiveness to low income is also declining among households with migrant children in poorer regions of China, then a higher share of elderly households are likely to be at risk of slipping into poverty.

–  –  –

Source: Cai, Giles, and Wang 2009, using survey data from RCRE 2004.

younger adults, older parents remain behind and continue farming the household land.

Features of China’s land tenure system may contribute to the effect of child migration on the labor supply of the elderly. Access to land in rural China has long been the safety net for able-bodied rural residents, but Sources of Support among the Rural Elderly 59 restrictions on the ability to transfer land may also influence labor supply decisions. The inability to rent land further reduces the income of an elderly person in retirement, and the possibility that village leaders will reallocate land that is not kept productive may create additional incentives for older farmers to continue working household land. Changes in the Land Law enacted in 2002 and 2003 may have facilitated land transfer and presumably may also have influenced the labor supply decisions of older rural residents.

No systematic relationship between elderly retirement and migration status of children is immediately evident. To examine the possibility that migration of children is systematically related to labor supply decisions of the elderly, figure 3.6 shows the share of age cohorts employed by migrant status for men and women in 1998 and 2003. At the same time, however, migration status of children and the labor supply decision of an elderly household resident are both systematically related to household composition, family wealth, earning ability of family members, and health status of the elderly person in question. To better characterize the relationship between (a) migration and (b) retirement and labor supply decisions of the elderly, it is important to explicitly model the labor supply decision of the elderly while controlling for these other factors.

The employment status and location of adult children may have an important effect on the retirement decision. However, the likely effect of a migrant child is ambiguous. On one hand, a migrant adult child may raise household income through increased remittances more than the migrant lowers income through lack of work in agriculture. In this case, one would expect the existence of a migrant son or daughter to be negatively associated with elderly parent labor supply. On the other hand, if loss of work capacity when a child migrates is not offset by remittances, migration of an adult child may make an elderly parent’s retirement more difficult. Moreover, if residents of a village lose land when it is not kept productive, land tenure insecurity may create an additional disincentive for retirement.

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