Medical Insurance Contribution and Firm-Level Total Factor Productivity

Abstract

This paper investigates the relation between medical insurance contribution and firm-level total factor productivity in China. Using a sample of Chinese A-share companies from 2007 to 2022, we find robust evidence that firms exhibit lower total factor productivity when medical insurance contribution is increasing. Specifically, we also show that this negative effect is more profound for state-owned enterprises, enterprises with lower employee compensation, and labor-intensive enterprises. Meanwhile, our findings remain valid after a series of robustness tests and controlling for endogeneity. Finally, we propose that the decreasing employees’ disposable income is plausible channel through which medical insurance contribution discourages firm-level total factor productivity in China. Overall, these results shed light on the real effects of medical insurance contribution and the determinants of firm-level total factor productivity.