Empirical study on old-age income adequacy: The case of Shanghai nursing homes

With the population aging and the family pattern change in mainland China, this study explores the old-age income adequacy of the informal employee entering nursing homes. It’s the first time we have modeled the structure of old-age income, and analyzed the old–age income gap of informal employees with detailed multi-factors and parameters. The study is based on unique data with the senior (informal sector employee) as the unit of analysis from the field survey of nursing home and marketing operation in Shanghai using a cost calculation method. We conclude that the old-age income gap of the informal employee entering nursing homes is huge if only relying on social pension insurance as the old-age income source.

We find that: In the middle and long-term, the growth rate of nursing home expenses is much higher than that of the social pension benefit because of the inflation of prices. The young generation will have a much larger old-age income gap than the middle generation. Based on our model for a 20 year old informal employee participating in the Shanghai citizen social basic pension program in 2015 and accessing the social pension benefit at age 60, the old-age income gap will be RMB 72.8 billion assuming a consecutive contribution period of 15 years, RMB 68.1 billion for a consecutive contribution period of 30 years, and RMB 65.2 billion for a consecutive contribution period of 40 years. For an informal employee 45 years of age, the old-age income gap will be RMB 35.1 billion with a consecutive contribution period of 15 years. Improving the social pension benefit and increasing the individual retirement savings is highly recommended in order to avert poverty in old age for the informal employee.