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

Hui He (), Feng Huang, Zheng Liu () and Dongming Zhu

Journal of Monetary Economics, 2018, vol. 94, issue C, 94-113

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.

Keywords: Precautionary savings; China’s SOE reform; Natural experiment; Self-selection bias; Difference-in-differences methods (search for similar items in EconPapers)
JEL-codes: E21 P31 D81 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:moneco:v:94:y:2018:i:c:p:94-113