Evaluating the impact of social security contribution rate, delayed retirement age, and employment rate on pension replacement rate: An overlapping generation (OLG) model analysis

Abstract

This study evaluates the impact of the social security contribution rate, late retirement age, and employment rate on pension replacement rate by using an overlapping generation (OLG) model that provides insightful measures on the endogenous pension replacement of retired employees in China. We conducted empirical analysis, Bootstrap & Sobel Test (BST) for mediating effect and used fixed and mediated effects models on panel data of 31 Chinese provinces to achieve specific employment promotion and pension replacement rates. The late employment rate is positively significant and correlated with the social security contribution rate (SSCR), which shows the late retirement age can significantly reduce SSCR. The optimal combination identified in the late retirement age that decreasing SSCR. The above results indicate that the intermediary effect is significant. Simultaneously, SSCR does play an intermediary role in the relationship between the late retirement age and the employment rate. The late retirement age affects the employment rate through the social security contribution rate; thus, the late retirement age reduces a corporate social security contribution rate and labor cost and then prompts the enterprise to increase employment demand. Furthermore, BST mediating effects show that the SSCR significantly affects the late retirement age and employment rate. We conclude effective policy reforms can alleviate the late retirement age dilemma because a decline in the social security contribution rate causes a 1 % reduction in the social security contribution rate causing the 0.41055 percent late retirement age yearly.