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Breaking the "Iron Rice Bowl" and Precautionary Savings: Evidence from Chinese State-Owned Enterprises Reform

Listed author(s):
  • Zheng Liu

    (FRBSF)

  • Feng Huang

    (Shanghai University of Finance and Economics)

  • Dongming Zhu

    (Shanghai University of Finance and Economics)

  • Hui He

    (Shanghai University of Finance and Econo)

We use China's large-scale reform of state-owned enterprises (SOEs) in the late 1990s as a natural experiment to identify and quantify the importance of precautionary saving for wealth accumulation. Before the reform, SOE workers enjoyed the same job security as government employees. Since the reform, over 35 million SOE workers have been laid off, although government employees kept their "iron rice bowl." The change in unemployment risk for SOE workers relative to that of government employees before and after the reform provides a clean identification of income uncertainty that helps us estimate the importance of precautionary saving. In our estimation, we correct a self-selection bias in occupational choice and disentangle the effects of uncertainty from pessimistic outlook. We obtain evidence that precautionary savings account for at least one-third of the wealth accumulation for SOE workers between 1995 and 2002.

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File URL: https://economicdynamics.org/meetpapers/2014/paper_764.pdf
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Paper provided by Society for Economic Dynamics in its series 2014 Meeting Papers with number 764.

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Date of creation: 2014
Handle: RePEc:red:sed014:764
Contact details of provider: Postal:
Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/
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  1. Nicola Fuchs-Schundeln & Matthias Schundeln, 2005. "Precautionary Savings and Self-Selection - Evidence from the German Reunification "Experiment"," Harvard Institute of Economic Research Working Papers 2069, Harvard - Institute of Economic Research.
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