The Incidence of Social Security Payroll Taxes: Evidence From China

Abstract

The Chinese government enforced public security system reform in the economic transition period. Now, the enterprise’ social insurance premium, a kind of payroll tax, is nearly 40% of the total wage in China. It is thought enterprises may transfer the burden of payroll taxes to workers by reducing their wages. Does the level of an enterprise’s social security payroll taxes influence their workers’ wages? Using the Chinese Large and Medium-size Manufacturing Enterprises (CLMME) dataset to construct an enterprise panel data from 2004 to 2007, we employ an empirical study to provide evidence on the issue. We utilize the fixed effects model, random effects model and Generalized Method of Moments (GMM) method to address the heterogeneity problem, initial dependent problem and endogenous problem. It is found that in general, increased social security payroll taxes negatively affect the workers’ wages, which indicates that many enterprises may transfer the payroll taxes burden onto their workers. Increased social security payroll taxes may decrease the wage levels for workers in both the public sector and the private sector, but the negative effect is greater for workers in the private sector than in the public sector.

Impacts of social insurance on firm performance: evidence from Vietnamese small- and medium-sized enterprises

“…The share of social insurance contributions is determined by the wage elasticity of labor demand and labor supply (Adhikari et al, 2009;Ma and Cheng, 2021). As social insurance premiums increase, companies can transfer social insurance premium burdens to their workers by reducing wages or to consumers by increasing product prices (Ma and Zhang, 2018). However, Adhikari et al (2009) argue that the basic effect of social insurance contributions is to increase employment and wages of contract labor and to reduce the employment and wages of regular workers.…”

“…, 2009; Ma and Cheng, 2021). As social insurance premiums increase, companies can transfer social insurance premium burdens to their workers by reducing wages or to consumers by increasing product prices (Ma and Zhang, 2018). However, Adhikari et al.…”

“…This interesting finding contributes many positive aspects to productivity theory. Ma and Zhang (2018) argue that social insurance and social security are a payroll tax, which can have a negative impact on economic activities. However, the implementation of social policies not only promotes social welfare but also makes stronger the endogenous resources of enterprises in the context of scarce resources in Vietnam.…”

The Impact of Social Insurance Contributions on Firms Employment and Wages: Evidence from China Employer-Employee Matching Survey Data

“…However, the results of these empirical studies are not consistent. For example, Fishback and Kantor (1995); Anderson and Meyer (2000); Kugler and Kugler (2003); Sakei and Kazegami (2007); Ma and Zhang (2018) and Ma and Cheng (2019) indicate that the level of social insurance contributions negatively affects workers' wage levels, whereas Gruber and Krueger (1991) and Gruber (1994;1997) find that the influence of the rise of social insurance contributions on wages is not statistically significant.…”

“…According to the rules of perfect market competition in order to gain the maximum profit a firm may transfer the burden of increased social insurance contributions onto its employees by reducing their wage levels and the number of workers. Most previous empirical studies find that an increased social insurance premium may induce a firm to transfer this burden onto its workers by reducing the workers' wage level or employment (Hamermesh, 1979;Summers, 1989;Gruber and Krueger, 1991;Gruber, 1994;1997;Fishback and Kantor, 1995;Anderson and Meyer, 2000;Kugler and Kugler, 2003;Iwamoto and Hamaaki, 2006;Sakei and Kazegami, 2007;Ma and Zhang, 2018;Ma and Cheng, 2019). Yet these empirical study results are not conclusive and there are insufficient empirical studies on the issue for China.…”