Institutional Determinants of the Retirement Patterns of China’s Urban and Rural Residents

Rapid population aging in China, by raising old-age dependency ratio and reducing labor supply, threatens to slow down economic growth. However, the dependency burden and labor shortage can be alleviated if the working life can be extended. Whether or not retirement can be postponed requires an understanding of the determinants of labor force participation of older workers. In this paper, we utilize the national baseline data from the 2011-12 China Health and Retirement Longitudinal Study to document the large differences in retirement between urban and rural residents and to motivate a discussion of how institutions influence divergent retirement patterns. Defining retirement to mean actually stopping work, we find that retirement patterns are indeed very different in urban and rural China. Urban Chinese retire at very early age but rural elderly “work until dropping”. The difference is possibly explained by mandatory retirement policy applicable to urban workers, generosity in permitting early exit from career jobs in the urban retirement system, greater coverage and generous pension in urban areas, and a large urban-rural gap in economic and family resources available for elderly support. Regression results suggest that institutions explain a substantial fraction of the urban rural differences in labor force participation.