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Breaking the “iron rice bowl:” Evidence of precautionary savings from the chinese state-owned enterprises reform

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  • He, Hui
  • Huang, Feng
  • Liu, Zheng
  • Zhu, Dongming

Abstract

China’s large-scale reform of state-owned enterprises (SOE) in the late 1990s provides a natural experiment for estimating precautionary savings. Before the reform, SOE workers enjoyed similar job security as government employees. The reform caused massive SOE layoffs, but government employees kept their “iron rice bowl.” The changes in the relative unemployment risks for SOE workers provide a clean identification of income uncertainty. With self-selection biases mitigated by focusing on government assigned jobs, precautionary savings account for about 40 percent of SOE households’ wealth accumulation. Moreover, demographic groups more vulnerable to the reform also accumulated more precautionary wealth.

Suggested Citation

  • He, Hui & Huang, Feng & Liu, Zheng & Zhu, Dongming, 2018. "Breaking the “iron rice bowl:” Evidence of precautionary savings from the chinese state-owned enterprises reform," Journal of Monetary Economics, Elsevier, vol. 94(C), pages 94-113.
    • Handle: RePEc:eee:moneco:v:94:y:2018:i:c:p:94-113
    DOI: 10.1016/j.jmoneco.2017.12.002
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    Cited by:

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    3. Ms. Longmei Zhang & Mr. R. Brooks & Ding Ding & Haiyan Ding & Hui He & Jing Lu & Rui Mano, 2018. "China’s High Savings: Drivers, Prospects, and Policies," IMF Working Papers 2018/277, International Monetary Fund.
    4. Michael Dotsey, 2019. "Demographic Aging, Industrial Policy, and Chinese Economic Growth," 2019 Meeting Papers 640, Society for Economic Dynamics.
    5. Michael Dotsey & Wenli Li & Fang Yang, 2019. "Demographic Aging, Industrial Policy, and Chinese Economic Growth," Working Papers 19-21, Federal Reserve Bank of Philadelphia.
    6. Dong-Hyeon Kim & Peiyao Liu & Shu-Chin Lin, 2024. "The moderating role of financial development in the nexus between population aging and saving," Economic Change and Restructuring, Springer, vol. 57(2), pages 1-32, April.
    7. Da Zhao & Jingyuan Guo & Hong Zou & Ze Song, 2022. "From Price to Gain: The Evolution of Household Income Volatility and Consumption Insurance in Urban China," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 30(6), pages 113-136, November.

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    More about this item

    Keywords

    Precautionary savings; China’s SOE reform; Natural experiment; Self-selection bias; Difference-in-differences methods;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • P31 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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