who bears the burden of employer compliance with social security contribution?
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Who bears the burden of employer compliance with social security contribution? . Evidence from Chinese firm level data. Ingrid Nielsen, Russell Smyth. 2011 级财政学 高洁 顾萌. 1. Introduction 2. Theoretical framework 3. Overview of existing studies - PowerPoint PPT PresentationTRANSCRIPT
Who bears the burden of employer
compliance with social security contribution? Evidence from Chinese firm level data
Ingrid Nielsen, Russell Smyth
2011 级财政学 高洁 顾萌
1. Introduction
2. Theoretical framework
3. Overview of existing studies
4. Employer compliance with social insurance in
Shanghai
5. Data
6. Empirical specification
7. Empirical results
8. Conclusion
Abstract
• DatasetDataset: Shanghai 2002 and 2003
• TargetTarget: examine the extent to which employers shift the burden of compliance with social security obligations back to employees in form of lower wages.
• MeansMeans: two-stage least squares
fixed effects panel model
1. Introduction
Security system reform: non-state sector, costs are equivalent to 40-50% of salary, higher than other
Asian countries.
Whether employer compliance with mandated benefits affects whether employers shift the
incidence back on to employees in transitional economies such as China.
Dataset: two successive audits form 2002 and 2003 conducted by the Bureau of Labor and Social
Security. Single city advantage
2. Theoretical framework
• Summers(1989)
S
D
P
Q
S`
D`
w`
w
2. Theoretical framework
• Summers(1989)
S
D
P
Q
S`
D`
W`
W
Q` Q
2. Theoretical framework
w: wage rate prior to social insurance contributions
tf : contribution rate borne by employers
te : contribution rate borne by employees
q: the extent to which employees value the employer’s
contribution ,relative to cash income(0<q<1)
a: the extent to which employees discount their
contributions relative to cash income(0<a<1)
Ld = fd ( w ( 1 + tf ) ) Ls = fs ( w ( 1 - ate ) + qwtf)
2. Theoretical framework
ed and es :labor elasticity of demand and supply
There are three conditions under which full shifting will occur ( (dw/w)dtf = -1).
q=1 and a=0
es =0
ed is infinite
note : In Shanghai ,it is unlikely that employees would expect q to be close to 1
(dw/w)dtf= [ esq-ed ] / [ ed-es(1-ate)]
3. Overview of existing studies
dataset results
1 1980s,Several high cost industries
85%
2 Females of child bearing age, mandated maternity benefits
100%
3 Experience-rated tax for unemployment insurance in Washington. Individual level earnings
Firms with a high risk of unemployment passed costs
4 Rising health premiums on wages
10% increase 2.3% reduced
United states Other countries
dataset results
1 Swedish time series for 1950-1979
A half of the cost
2 1980s Chile manufacturing census data
full
3 A panel of European countries
More than half
4 Japanese firms 70-97
Not at all
5 health insurance from 1995-2001
Majority
6 Taiwan’s labor standards law
Females wage fell
4. Employer compliance with social insurance in Shanghai
Social insuran
ce scheme
Social insuran
ce scheme
• Pension insurance
• Medical insurance
• Industrial injury insurance
• Maternity insurance
• Unemployment insurance
• Pension insurance
• Medical insurance
• Industrial injury insurance
• Maternity insurance
• Unemployment insurance
towntown
ruralrural
urbanurban
Employer compliance
• Pension insurance 22%
• Medical insurance 12%
• Industrial injury insurance
0.5%
• Maternity insurance 0.5%
• Unemployment insurance
2%
• Pension insurance 22%
• Medical insurance 12%
• Industrial injury insurance
0.5%
• Maternity insurance 0.5%
• Unemployment insurance
2%
MandatedContribution
37%
Voluntarycontributions
• Commercial pension
insurance
• Commercial pension
insurance
4. Employer compliance with social insurance in Shanghai
Since 2001, independent auditor engaged
But
Compliance rates are low
4. Employer compliance with social insurance in Shanghai
The prospect of an employer getting caught in the annual audit if it is not complying with the regulations is quite low
Reason for low compliance rate
The lack of an effective enforcement mechanism if employers are audited and found to have underpaid
4. Employer compliance with social insurance in Shanghai
5. Data
In 2002 and 2003 the BOLSS in Shanghai engaged independent accountants to audit 5400 and 5600 firms respectively to ascertain whether they were making their prescribed social insurance payment.
A representative sample of enterprises in terms of industry and ownership type and number of employees
5212 5480
5. Data
5. Data
6. Empirical specification
COMPLIANCE: continuous variablepaid exactly the mandated 37% of payroll 0under-compliance eg. 32% —— -5over-compliance eg. 42% —— +5
expected sign on the coefficient is negativeexpected sign on the coefficient is negative
rescaled
SIZE:The number of employees in each firm ( in hundreds)
expected sign on the coefficient is positiveexpected sign on the coefficient is positive
SECTOR: dummy variable Manufacturing 0 Others 1
expected sign on the coefficient is positiveexpected sign on the coefficient is positive
6. Empirical specification
6. Empirical specification
OWNERSHIP: dummy variable FIE 0 others 1
expected sign on the coefficient is negativeexpected sign on the coefficient is negative
6. Empirical specification
7. Empirical results
• Requirement : correlated with compliance , unrelated with wage ceteris paribus
• Reaudit: for the 2002 sample is a dummy variable equal to 1 if the firm had been audited in 2001and otherwise 0
• Reason: 1,correalted with compliance.
2,only correlated with wage through its impact
on compliance.
Instrumental variable
Table 3Table 3
• The result of the cross-sectional ordinary
least squares ( OLS ) and two-stage least
squares ( TSLS ) estimates for 2002
• The result of the cross-sectional ordinary
least squares ( OLS ) and two-stage least
squares ( TSLS ) estimates for 2002
7. Empirical results
• significant and negative • 9.1% of the incidence was shifted back on to employees
in the form of lower wage.
• significant and negative • 9.1% of the incidence was shifted back on to employees
in the form of lower wage.
Table 4Table 4
• The COMPLIANCE variable is
disaggregated for employers who are
under- and over-compliant
• The COMPLIANCE variable is
disaggregated for employers who are
under- and over-compliant
7. Empirical results
• significant and positive• 1% increase in the percentage
of under-compliance, 0.568% increase in average wages.
• significant and positive• 1% increase in the percentage
of under-compliance, 0.568% increase in average wages.
insignificantinsignificant
The coefficient on compliance in the TSLS estimate is statistically significant with the
expected negative sigh.
Reason: 1,reaudit is a much better instrument for under- compliance than over-compliance. 2,improved enforcement between 2002 and 2003.
Table 7Table 7
• The fixed effects panel regression estimates for the sub-sample of 796 firms that were audited in both 2002 and 2003
• The fixed effects panel regression estimates for the sub-sample of 796 firms that were audited in both 2002 and 2003
Over the two years 18.9% of the compliance cost was shift back to employees in the form of lower wages.
7. Empirical results
Employees in the sample firms in Shanghai value the benefit of the employers’ social insurance contribution by less than the cost to the employer
The extent to which firms in our study shift the cost of compliance back is smaller than previous studies
The direct benefit to employees of a 1% reduction in the percentage of under-compliance is relatively small
The direct benefit to employees of a 1% reduction in the percentage of under-compliance is relatively small
Employer contribution
3% deposited in an individual account
The rest in the social pooling fund
explanationexplanation
8. conclusion
To what extent do employers shift the burden of employer compliance
back on to employees in the form of lower wages
9.1%2002
33.8%2003
The level employer compliance with social security commitment increased