Who bears the burden of employer compliance with social security contributions? Evidence from Chinese firm level data

This article utilizes firm level audited data from Shanghai in 2002 and 2003 to examine the extent to which employers shift the burden of compliance with social security obligations back to employees in the form of lower wages. Results from a fixed effects panel model using data on a subset of the firms audited in both years found that 18.9% of the compliance cost was shifted back to employees in the form of lower wages. Separate two-stage least squares estimates with controls for firm size, ownership and industry type for 2002 and 2003 found that the incidence of social insurance contributions on employees increased across the two years. In 2002 the incidence of social insurance contributions on employees was 9.1% and in 2003 this increased to 33.8%. An explanation for the increase in the incidence on employees over the two years is that employer compliance improved in 2003 compared with 2002. © 2007 Elsevier Inc. All rights reserved.