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


  • Zheng Liu


  • 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.

Suggested Citation

  • Zheng Liu & Feng Huang & Dongming Zhu & Hui He, 2014. "Breaking the "Iron Rice Bowl" and Precautionary Savings: Evidence from Chinese State-Owned Enterprises Reform," 2014 Meeting Papers 764, Society for Economic Dynamics.
  • Handle: RePEc:red:sed014:764

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    References listed on IDEAS

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    Cited by:

    1. Curtis, Chadwick C. & Lugauer, Steven & Mark, Nelson C., 2017. "Demographics and aggregate household saving in Japan, China, and India," Journal of Macroeconomics, Elsevier, vol. 51(C), pages 175-191.

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    JEL classification:

    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • P31 - Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions

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