Can Social Security Boost Domestic Consumption in the People’s Republic of China?

This paper reviews the development of the social security system and trends in the urban labor market in the People’s Republic of China (PRC). Despite its remarkable economic achievement, the PRC faces a difficult path before it can reform and improve its social security system and provide basic support for all of its people. The unemployment shock has caused rural and urban household income to decrease and has thus slowed down household consumption growth. The provision of broader social security would not only mitigate unemployment shocks in the short term, but it would also guarantee individuals and households more security for spending that could reduce the high savings rate and help achieve a balanced growth path in the long run. The author’s findings argue that households with social security coverage spend more and income distribution among urban households is improved through public transfers.