Public Health Insurance and the Transition Into Formal Employment: Evidence From Urban China

Abstract

Background

Formal employment has been declining in urban China despite rapid economic growth. One plausible but underexplored explanation is the expansion of public health insurance that is not tied to formal employment. This paper investigates whether enrollment in the Urban Residents Basic Medical Insurance (URBMI) is associated with individuals’ subsequent transitions into formal employment.

Methods

We use longitudinal data from the URBMI Household Survey, conducted annually between 2007 and 2011, and employ an instrumental variable (IV) strategy to address endogeneity concerns. The instruments are the community-level URBMI enrollment rate and the city-level government subsidy ratio. The analysis sample consists of 21,913 person-wave observations of urban residents aged 16–59 who were not formally employed in the previous year.

Results

IV-Probit estimates indicate that enrollment in this subsidized public insurance is associated with a lower probability of taking up a formal job by 13.9 percentage points compared with being uninsured, with the estimate statistically significant at the 1% level. Secondary analyses indicate that URBMI enrollment is associated with higher probabilities of self-employment (6.2 percentage points) and unemployment (5.5 percentage points), although the estimates are statistically significant at the 5% and 10% levels, respectively.

Conclusion

These findings suggest that access to subsidized public health insurance is associated with subsequent labor market transitions among urban residents initially outside formal employment in the sampled pilot cities. They highlight the importance of considering potential labor market responses when designing policies that expand health insurance coverage for individuals outside formal employment.