Does a reduction in the pension insurance contribution ratio promote firm productivity? Evidence from a quasinatural experiment in China

Xiaohan Liu, Jianmin Liu, Jia Liu, Jinguang Wu and Yu Hao

International Journal of Finance & Economics, 2025, vol. 30, issue 1, 665-688

Abstract: Reducing the burden of social security contributions for firms, unleashing their vitality, and enhancing their total factor productivity (TFP) are crucial measures in China's pursuit of sustainable and high‐value‐added growth. This article utilizes three reductions in the corporate pension insurance contribution ratio in China as a quasi‐natural experiment to construct a treatment intensity DID (Difference‐in‐Differences) model. By utilizing data from listed companies between 2013 and 2020, this study empirically examines the impact of reducing the pension insurance contribution ratio on firms’ TFP while identifying the underlying mechanisms. The findings of the study are as follows: First, the policy exhibits a significant positive effect on corporate TFP in China. Second, this policy's contribution primarily stems from stimulating firms to increase their employment of highly skilled labour, elevating wages for ordinary employees, and enhancing firm investment efficiency. Lastly, the analysis of heterogeneity demonstrates that the policy's positive effect is more pronounced among non‐state‐owned enterprises, small and medium‐sized enterprises, and labour‐intensive enterprises. This study provides empirical evidence for evaluating the contribution reduction policy and serves as a policy reference for endeavours to deepen the reform of the pension insurance system and enhance pension insurance fund budget management.

Date: 2025
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