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The Effect of an Expansion of the Pay-As-You-Go Social Security System in China

IJED, Vol. 1 No. 4, (1999)

China is in the process of industrialization with a large amount of the labor force moving from the agricultural sector to industrial sectors. An expansion of the pay-as-you-go social security system benefits current urban retirees, and may solve the social security payment problem faced by many state enterprises. Also, although facing a declining population growth rate, China may not have a social security crisis under a pay-as-you-go social security system just covering the wage earners, as many industrialized countries face. However, the expansion of the pay-as-you-go social security system may have an adverse effect on capital accumulation in the long run, hurting the rural old, and either benefiting or hurting the wage earners in urban areas before the completion of industrialization, and is likely to reduce wage earners’ welfare after industrialization.

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