Few and Unfair: Measurement and Decomposition of Regional Disparities in Pension Benefits among Urban and Rural Residents in China

Abstract

China’s aging population poses a significant challenge, drawing attention to regional disparities in pension benefits for urban and rural residents. Using diverse methods such as range, Gini coefficient, Theil index, regression-based inequality decomposition, and Oaxaca-Blinder decomposition, this study examines pension disparities from 2010 to 2022. The findings reveal that pension benefits for both urban and rural residents are not only insufficient but also exhibit significant regional disparities. The Theil index decomposition reveals 60% of the disparity within regions and 40% between regions. Uneven economic development emerges as the key contributor to widening regional gaps, emphasized by the regression-based analysis. Oaxaca-Blinder decomposition identifies an unjustifiable 41.99% contributing to the pension gap. These findings emphasize the necessity for China to take relevant measures in narrowing the regional disparities in pension benefits to promote social equity.

Keywords

urban and rural residents pension benefits regional disparities inequality decomposition

Introduction

As widely known, due to the implementation of strict family planning policies, China entered the phase of population aging around 2000 and is facing increasingly severe challenges of an aging population (H. Wang, Huang & Yang, 2019; Y. Zhao et al., 2023). Pension benefits, as the main source of income and vital social security for the elderly, play a crucial role in China’s proactive response to population aging (Z. Shen & Yang, 2021; S. Zhang, Wang, et al., 2023). The country has established pension scheme is for public sector employees, including civil servants and public institution employees (PSCP), pension scheme for urban employees (PSUE), pension scheme for urban and rural residents (PSURR), effectively covering all segments of the population (H. P. Wang & Huang, 2023). This achievement represents a significant step forward in China’s pension security, contributing positively to addressing aging issues and promoting social equity (G. Huang & Cai 2021; J. Liu et al., 2016). However, relative to the level of economic development, the efforts made in pension security are deemed inadequate, with the focus of public concern shifting from “access” to “equity.” A prominent issue is that PSURR, as the largest social pension insurance system, specifically designed for China’s rural residents and urban informal workers, not only offers low pension benefits but also exhibits significant regional disparities (Cai & Cheng, 2015; T. Liu & Sun, 2016). According to data from the 2023 China Statistical Yearbook, the average pension for urban and rural residents nationwide is 3,515.82 CNY per year, with Shanghai providing the highest average pension at 18,620.69 CNY per year, and Jilin offering the lowest at only 1,594.36 CNY per year. The former is 11.68 times higher than the latter, resulting in an absolute gap of 17,026.33 CNY per year. Comparatively, the ratio of the highest to lowest per capita disposable income for urban residents and rural residents during the same period is only 2.37 and 3.27, respectively, indicating that the regional disparities in pension benefits among urban and rural residents are far greater than those in disposable income (J. Li et al., 2020; M. Li & Zhang, 2022; A. Zhang & Imai, 2024). This highlights the pressing issue of regional disparities in pension benefits for urban and rural residents in China. If left unaddressed, it could become a major obstacle to achieving the goal of common prosperity and hinder regional economic coordination and high-quality development. Therefore, this study aims to measure and analyze the evolution of regional disparities in pension benefits among urban and rural residents in China and deeply explore its underlying causes through decomposition analysis.

Compared to existing research, this study’s possible marginal contributions are reflected in three aspects: First, while many studies have emphasized that the unfairness of pension benefits in China mainly manifests as inequality between different pension systems, this study, through calculation, finds that there is also inequality within the urban and rural residents’ pension system, primarily reflected in the significant gap in pension benefits between different regions. This further deepens the research on the existing literature. Second, unlike other literature that only qualitatively discusses the regional gap in pension benefits between urban and rural residents, this study incorporates lagging factors, economic factors, fiscal factors, population mobility factors, and pension burden factors into a unified analytical framework. It constructs an econometric regression model to explore the regional gap in pension benefits and decomposes the contribution of different influencing factors, distinguishing between primary and secondary factors. Third, this study employs the Oaxaca-Blinder decomposition method to analyze the rationality of the regional gap in pension benefits for urban and rural residents, finding that 41.99% of the pension regional gap is unreasonable. This is a beneficial exploration. To our knowledge, there has been no literature that has conducted a rationality decomposition analysis on this issue.

The other part of this study as follows. Second section is the literature review. “Methods” section introduced the methods and data. “Results” section analyzed the study results. “Discussion” section is the discussion part. Last section proposed the conclusions and policy implications.

Literature Review

The issue of regional disparities in pension benefits for urban and rural residents in China emerged gradually after the establishment of PSURR. Fundamentally, it represents a developmental challenge and a contradiction in progress. Prior to this, scholars mainly focused on whether China’s rural residents and urban informal workers had access to pension benefits and explored how to establish pension systems tailored to these groups (X. Chen et al., 2020; Y. Chen et al., 2021; Smyth, 2000; Williamson et al., 2017; D. Yang, 2002). In fact, China had already started exploring the establishment of a pension system for rural residents, commonly referred to as the old rural insurance, in the 1990s, conducting pilot programs in a few areas, but these did not achieve the anticipated policy effects. Many scholars believe that the old rural insurance was merely a personal savings scheme, making it difficult to motivate rural residents to continuously participate (Ebenstein & Leung, 2010; C. Shen et al., 2020; S.-J. Shi, 2006; D. Wang, 2006). It was not until 2009, following the calls from many researchers, that the Chinese government began to experiment with a new type of rural social pension insurance system. This system established a funding model that combines individual contributions, collective subsidies, and government subsidies, allowing every insured farmer to directly receive a monthly pension after reaching the age of 60. This system achieved significant success and was quickly promoted nationwide, thereby integrating rural residents into the social pension security system (Caro & Parada-Contzen, 2022; W. Huang & Zhang, 2021; Shu, 2018; Q. Zhao et al., 2016).

Subsequently, although the issue of regional disparities in pension benefits among urban and rural residents has emerged, scholars’ discussions have predominantly revolved around the following aspects: First, the fairness issues between different pension insurance systems. PSURR covers the most extensive population but offers the lowest pension benefits, which is clearly unfair (Cai & Cheng, 2015; T. Liu & Sun, 2016; L. Wang et al., 2014; Wu, 2013). Some scholars note that, although PSURR provides pensions for rural residents and urban informal workers, these groups remain on the periphery of China’s pension system (Dong & Wang, 2016; H. P. Wang & Huang, 2023). Second, the financial sustainability issue of PSURR. PSURR faces a significant future pension shortfall, which, although can be mitigated by delaying retirement, adjusting population policies, and increasing contribution rates, the long-term pension gap may be unavoidable (Coeurdacier et al., 2014; H. Wang, Huang & Sun, 2019). Third, assessing the policy effects of PSURR. Some scholars have pointed out that while PSURR has crowded out some of the children’s transfer payments to the elderly, overall, it has increased the insured groups’ household income and food expenditure, reduced agricultural labor, improved health conditions, and lowered mortality rates (W. Huang & Zhang, 2021; X. Shi, 2022; You & Niño-Zarazúa, 2019).

In recent years, research on regional disparities in pension benefits among urban and rural residents has grown steadily. Many scholars argue that PSURR, as a redistributive system, not only fails to effectively reduce income disparities between regions but also contributes to widening the gap to some extent (Hanewald et al., 2021; J. Li et al., 2020).

China’s significant regional disparities in pension benefits for urban and rural residents are merely the surface issue; the more crucial aspect lies in the underlying influencing factors. Based on relevant research, these factors can be roughly summarized as follows: (1) Economic factors: Over the past four decades of reform and opening-up, China has experienced substantial economic disparities among different regions, with the eastern coastal areas being more developed and the central and western regions lagging behind. This imbalance and insufficient development inevitably impact the level of pension benefits in different regions (D. Yang, 2002; Zhu & Walker, 2018). Moreover, residents in economically developed regions have relatively higher disposable incomes and are more likely to choose higher contribution levels, resulting in higher pension benefits (Tang et al., 2021; C. Zhao & Qu, 2021). (2) Financial factors: Each region can adjust the basic pension standard and the level of individual contribution subsidies according to local conditions. These adjustments are borne by local governments, and the varying fiscal subsidy capabilities undoubtedly affect the level of pension benefits for urban and rural residents in different regions (Sun et al., 2020; H. Wang, Huang & Sun, 2019). (3) Population mobility factors: The substantial migration of young and middle-aged populations from rural areas to cities and from less developed provinces to developed ones restricts the collective economic development in regions experiencing a net outflow of population. This leads to relatively lower contribution subsidies for contributors and subsequently affects the level of pension benefits for urban and rural residents (Eggleston et al., 2016; Ning et al., 2016). (4) Pension burden factors: The degree of population aging varies across regions, with regions experiencing heavier pension burdens generally offering lower pension benefits and vice versa (Bairoliya et al., 2018; C. Shen et al., 2020). (5) Lagging factors: Pension growth exhibits a ratchet effect, where regions with higher pension benefits in the previous year are likely to maintain higher benefits in the next year (Foster & Walker, 2013; Gao et al., 2022).

From the review of the literature, it is evident that the issue of regional disparities in pension benefits for urban and rural residents in China is receiving increasing attention from the academic community. However, due to factors such as the relatively short implementation period of the PSURR and its low benefit levels, existing literature lacks comprehensive multidimensional measurements of regional disparities and fails to present a complete picture of the dynamic evolution of these disparities. Additionally, there is a need for a deeper analysis of the underlying causes, with limited studies examining the composition of factors contributing to the disparities and a lack of decomposed analyses to determine the relative contributions of each factor, especially in identifying the unreasonable portion of the disparities. Therefore, this study will focus on addressing these gaps by conducting research on measuring and decomposing the regional disparities in pension benefits for urban and rural residents in China.

Methods

Measurement Methods

To better illustrate the evolution of regional disparities in pension benefits for urban and rural residents in China, this study employs both absolute and relative disparity indicators for measurement. The absolute disparity indicator used is the range (extremes), while the relative disparity indicators used are the Gini coefficient and the Theil index. The larger the calculated values of these indicators, the greater the regional disparities in pension benefits for urban and rural residents in China. The formulas for calculating the range, Gini coefficient, and Theil index are represented as follows:

R = max (Y_{i}) - min (Y_{i})

(1)

Gini = \frac{2}{n^{2} • \bar{Y}} \sum_{i} (i - \frac{n + 1}{2}) Y_{i}

(2)

Theil = \frac{1}{n} \sum_{i = 1}^{n} \frac{Y_{i}}{\bar{Y}} \log (\frac{Y_{i}}{\bar{Y}})

(3)

In the formulas above, $Y_{i}$ represents the average pension in $i$ province (arranged in ascending order), $n$ represents the number of provinces in the sample, and $\bar{Y}$ represents the national average pension.

Decomposition Methods

Decomposition of the Theil Index

To understand whether the regional disparities in pension benefits for urban and rural residents in China mainly stem from differences between regions or within regions, this study employs the decomposition of the Theil index. Specifically, based on the regional division of the National Bureau of Statistics, China is divided into four major regions: eastern, central, western, and northeastern. The decomposition formula is represented as follows:

Theil = T_{b} + T_{w} = \sum_{k = 1}^{K} y_{k} \log \frac{y_{k}}{n_{k} / n} + \sum_{k = 1}^{K} y_{k} (\sum_{i \in g_{k}} \frac{y_{i}}{y_{k}} \log \frac{y_{i} / y_{k}}{1 / n_{k}})

(4)

In formula (4), $T_{b}$ and $T_{w}$ represent the disparities between groups (between regions) and within groups (within regions), respectively. $K$ represents the number of groups (four major regions), and $g_{k}$ represents the $k$ -th group. The number of provinces in group $g_{k}$ is denoted as $n_{k}$ , $y_{i}$ and $y_{k}$ represent the pension share of province $i$ and the pension share of region $K$ , respectively. The proportions of $T_{b}$ and $T_{w}$ in the Theil index represent their respective contribution rates to the regional gap in pension benefits between urban and rural residents.

Regression-Based Inequality Decomposition

To delve into the factors influencing regional disparities in pension benefits for urban and rural residents in China, this study adopts a regression-based inequality decomposition method, referring to relevant research (Fields & Yoo, 2000; Shorrocks, 1982; Wan & Zhou, 2005; Yuan et al., 2021; Zhuang et al., 2019). The steps of this method are as follows:

Step 1: Build the regression model. According to the previous literature analysis, the following econometric regression model is established:

Y = α + \sum β_{j} X_{j} + ε

(5)

In formula (5), $Y$ represents the pension level for urban and rural residents in each region; $α$ represents the constant term; $ε$ represents the random error term, representing other factors beyond the model; $β_{j}$ represents the regression coefficient of each influencing factor; $X_{j}$ represents each influencing factor, which includes lagging factors, economic factors, financial factors, population mobility factors, and pension burden factors, among others. Specifically, the hysteresis factor is denoted by the one-period lag of the pension level of urban and rural residents in each region (Y_t₋₁). The economic factor is represented by the per capita disposable income of rural residents in each region (Income). The fiscal factor is expressed by the per capita fiscal income of each region (Fiscal). The population mobility factor is denoted by the urbanization rate of each region (Urban). Lastly, the pension burden factor is indicated by the ratio of the number of pensioners to the number of insurance participants in each region (Burden). Based on the description in the second part of the literature review, this paper makes the following assumptions regarding the regression coefficients of these influencing factors: The regression coefficients for variables Y_t−1, Income, Fiscal are positive, while those for Urban and Burden are negative.

Step 2: Decompose the contribution rate of the random error term (Kessels & Erreygers, 2019; Morduch & Sicular, 2002; Wan & Zhou, 2005). By estimating the model (5), we can get:

\overset{\land}{Y} = α^{\land} + \sum \overset{\land}{β_{j}} X_{j}

(6)

The Gini coefficients of $Y$ and $\overset{\land}{Y}$ are measured and represented by $G (Y)$ and $G (\overset{\land}{Y})$ respectively, then the contribution rate of the random error term can be expressed as:

C R_{ε} = (G (Y) - G (\overset{\land}{Y})) / G (Y)

(7)

The third step is to decompose the contribution rate of each influencing factor. Let $\tilde{Y} = \sum \overset{\land}{β_{j}} X_{j}$ , according to the decomposition formula of the Gini coefficient, we can get:

G (\tilde{Y}) = \sum E (\overset{\land}{β_{j}} X_{j}) / E (\tilde{Y}) C (\overset{\land}{β_{j}} X_{j})

(8)

In formula (8), E represents the expected value, C represents the concentration index, and the contribution rate of each influencing factor can be expressed as:

C R_{j} = E (\overset{\land}{β_{j}} X_{j}) / E (\overset{\land}{Y}) C (\overset{\land}{β_{j}} X_{j}) / G (Y)

(9)

Oaxaca-Blinder Decomposition

If the regional disparities in pension benefits for urban and rural residents in China are entirely attributable to reasonable factors, then such disparities are considered relatively fair and socially acceptable. However, if they are caused by unreasonable factors, then the disparities are unfair and socially unacceptable. Therefore, this study introduces the Oaxaca-Blinder decomposition method to analyze and decompose the regional disparities in pension benefits for urban and rural residents in China, identifying the portion that is reasonable and the portion that is unreasonable (Blinder, 1973; Oaxaca, 1971). The specific steps are as follows: First, select a region as the benchmark region and treat other regions as non-benchmark regions. Then, separately estimate the pension determination equations for the benchmark region and non-benchmark regions as follows:

Ln Y_{m} = α_{m} + β_{m} X_{m} + ε_{m}

(10)

Ln Y_{c} = α_{c} + β_{c} X_{c} + ε_{c}

(11)

Among them, the subscripts m and c represent the reference area and non-reference area, respectively. $LnY$ represents the logarithm of the pension, and is the explanatory variable matrix, which aligns with the variables selected in model (5). The estimated coefficients $\overset{\land}{α_{m}}$ , $\overset{\land}{α_{c}}$ , $\overset{\land}{β_{m}}$ , and $\overset{\land}{β_{c}}$ can be obtained by estimating the models (10) and (11), respectively. Finally, decompose the pension difference ( $\bar{Ln Y_{m}} - \bar{Ln Y_{c}}$ ) between the reference area and the non-benchmark area, and the results are as follows:

\bar{Ln Y_{m}} - \bar{Ln Y_{c}} = (\overset{\land}{α_{m}} - \overset{\land}{α_{c}}) + \overset{\land}{β_{m}} (\bar{X_{m}} - \bar{X_{c}}) + (\overset{\land}{β_{m}} - \overset{\land}{β_{c}}) \bar{X_{c}}

(12)

In formula (12), the terms with the superscript “—” represent the means, and the first $(\overset{\land}{α_{m}} - \overset{\land}{α_{c})}$ and third terms $(\overset{\land}{β_{m}} - \overset{\land}{β_{c}}) \bar{X_{c}}$ on the right side represent the unexplained portion, considered unreasonable. The second term $\overset{\land}{β_{m}} (\bar{X_{m}} - \bar{X_{c}})$ on the right side represents the explained portion, considered reasonable.

Data Source and Treatment

The data used in this study cover the years 2010 to 2022, sourced from the China Statistical Yearbook. For handling some exceptional data, corresponding provincial statistical yearbooks and statistical bulletins for the relevant years were consulted. Due to data statistical criteria, this study’s research sample does not include Hong Kong, Macau, and Taiwan regions but only consists of 31 provinces in mainland China. To mitigate the impact of heteroscedasticity, the natural logarithm was taken for pensions ( $Y$ ), lagging factors (Y_t₋₁), economic factors (Income), and financial factors (Fiscal) during the econometric regression.

Results

Evolutionary Characteristics of Regional Disparities in Pension Benefits for Urban and Rural Residents in China

Evolutionary Characteristics of Absolute Regional Disparities

(1) Pension benefits for urban and rural residents in the eastern region are significantly higher than other regions.

As shown in Table 1, the pension benefits for urban and rural residents nationwide have shown a steady increase over the years, rising from 894.64 CNY/year in 2010 to 3,515.82 CNY/year in 2022. Regarding the pension benefits for urban and rural residents in different regions, a generally consistent evolutionary trend is observed. However, there exist significant disparities in pension benefits between regions. Specifically, the pension benefits for urban and rural residents in the eastern region are the highest, followed by the western and northeastern regions, while the central region has the lowest pension benefits (with the exception of 2022). Notably, the pension benefits for urban and rural residents in the eastern region are significantly higher than in other regions, with relatively smaller differences between the western, central, and northeastern regions. For instance, in 2022, the pension benefits for urban and rural residents in the eastern region have reached 6,413.06 CNY/year, whereas they are only 1,953.46, 2,298.88, and 1,850.75 CNY/year in the central, western, and northeastern regions, respectively. The absolute disparities between the eastern region and the central, western, and northeastern regions are 4,459.60, 4,114.18, and 4,562.31 CNY/year, respectively.

Table 1.

Pension Benefits for Urban and Rural Residents in China and Various Regions From 2010 to 2022 (CNY/Year).

Year	Nationwide	Eastern	Central	Western	Northeastern
2010	894.64	1,510.47	561.68	617.83	615.03
2011	924.34	1,487.66	464.48	798.94	467.95
2012	1,225.70	1,982.29	642.60	1,029.08	656.46
2013	1,354.02	2,335.89	754.71	923.93	760.10
2014	1,539.37	2,717.95	787.49	1,105.78	848.86
2015	1,949.88	3,246.77	1,127.05	1,459.95	1,232.35
2016	1,881.28	3,092.79	1,068.89	1,461.78	1,145.68
2017	2,064.96	3,493.37	1,141.05	1,552.15	1,202.67
2018	2,423.43	3,968.22	1,486.94	1,839.43	1,483.09
2019	2,602.61	4,366.72	1,557.04	1,915.33	1,562.50
2020	2,792.43	4,709.66	1,645.58	2,042.99	1,693.19
2021	3,144.40	5,498.47	1,772.37	2,207.92	1,787.52
2022	3,515.82	6,413.06	1,953.46	2,298.88	1,850.75

Source. https://doi.org/10.7910/DVN/XNFVRK

Note. The data was compiled and calculated by the author based on historical editions of the China Statistical Yearbook.

(2) The disparity in urban and rural residents’ pension shows an expanding trend.

The absolute disparity in urban and rural residents’ pension, calculated using formula (1), is presented in Table 2. It can be observed that both the national and regional disparities show an expanding trend, with variations across different regions. Nationally, the disparity in urban and rural residents’ pension decreased from 4,525.08 CNY/year in 2010 to 4,384.50 CNY/year in 2011, but has been consistently increasing since then, reaching 17,026.33 CNY/year in 2022. In the eastern region, the trend of the disparity in urban and rural residents’ pension is generally similar to the national trend, but the values are slightly lower. In the central region, although there is a weak expanding trend in the disparity, it shows more of a fluctuating rise, and the values are relatively small, with only 640.70 CNY/year in 2022. The trend in the disparity in the northeast region is basically consistent with the central region. In the western region, the disparity in urban and rural residents’ pension expanded from 623.43 CNY/year in 2010 to 1,524.24 CNY/year in 2022, showing a fluctuating trend as well. It is worth noting that although the disparity in the western region is much smaller than in the eastern region, it is larger than in the central and northeast regions. This indicates that the disparity in urban and rural residents’ pension is more significant among eastern provinces, followed by western provinces, while central and northeast provinces show relatively smaller disparities.

Table 2.

Absolute Disparity in Urban and Rural Residents’ Pension in China and Various Regions From 2010 to 2022 (CNY/Year).

Year	Nationwide	Eastern	Central	Western	Northeastern
2010	4,525.08	4,278.73	359.41	623.43	385.45
2011	4,384.50	4,114.70	113.05	1,928.43	465.23
2012	5,917.13	5,859.83	36.28	1,769.51	63.52
2013	6,702.96	6,644.91	199.05	706.22	177.37
2014	7,864.13	7,819.93	247.87	735.99	304.03
2015	8,892.29	8,876.18	141.52	776.97	458.03
2016	10,024.62	9,925.21	119.56	1,053.67	419.59
2017	11,595.41	11,373.25	256.69	1,372.95	286.62
2018	12,560.55	12,373.40	365.03	1,250.51	305.32
2019	13,611.45	13,446.01	345.81	1,300.04	318.55
2020	14,721.96	14,556.55	347.23	1,715.60	345.76
2021	15,952.21	15,757.23	430.12	1,629.87	419.77
2022	17,026.33	16,952.10	640.70	1,524.24	536.79

Source. https://doi.org/10.7910/DVN/JUUOU2

Note. The data was compiled and calculated by the author based on historical editions of the China Statistical Yearbook.

(3) The regional distribution of high and low values of urban and rural residents’ pension shows a trend of solidification.

Table 3 presents the top 5 provinces with the highest and lowest urban and rural residents’ pension from 2010 to 2022. It can be observed that, except for the years 2010, 2011, 2012, and 2017, the top 5 provinces with the highest pension are all located in the eastern region, and these provinces remain relatively consistent throughout the years. On the other hand, the five provinces with the lowest urban and rural residents’ pension are distributed across the eastern, central, western, and northeast regions, with some variations in different years, but generally locked in relatively fixed provinces. This indicates that the regional distribution of high and low values of urban and rural residents’ pension is showing a trend of solidification, where certain provinces consistently have high pension values while others have low pension values.

Table 3.

Top 5 Provinces With the Highest and Lowest Urban and Rural Residents’ Pension From 2010 to 2022.

Year	Top 5 provinces (highest)	Top 5 provinces (lowest)
2010	Shanghai, Beijing, Tianjin, Jiangsu, Gansu	Qinghai, Jilin, Yunnan, Jiangxi, Shaanxi
2011	Beijing, Shanghai, Chongqing, Tianjin, Guangdong	Jilin, Henan, Jiangxi, Yunnan, Hunan
2012	Shanghai, Beijing, Chongqing, Tianjin, Zhejiang	Gansu, Yunnan, Fujian, Hebei, Jiangxi
2013	Shanghai, Beijing, Tianjin, Zhejiang, Jiangsu	Hunan, Jiangxi, Jilin, Guizhou, Hebei
2014	Shanghai, Beijing, Tianjin, Zhejiang, Jiangsu	Jiangxi, Hebei, Jilin, Hunan, Anhui
2015	Shanghai, Beijing, Tianjin, Zhejiang, Jiangsu	Heilongjiang, Hebei, Yunnan, Guizhou, Hunan
2016	Shanghai, Tianjin, Beijing, Zhejiang, Jiangsu	Heilongjiang, Guizhou, Yunnan, Jiangxi, Anhui
2017	Shanghai, Tianjin, Beijing, Zhejiang, Qinghai	Guizhou, Yunnan, Jiangxi, Anhui, Jilin
2018	Shanghai, Tianjin, Beijing, Zhejiang, Jiangsu	Guizhou, Jilin, Jiangxi, Yunnan, Henan
2019	Shanghai, Tianjin, Beijing, Zhejiang, Guangdong	Guizhou, Jilin, Yunnan, Henan, Hebei
2020	Shanghai, Tianjin, Beijing, Zhejiang, Jiangsu	Guizhou, Jilin, Hebei, Henan, Yunnan
2021	Shanghai, Beijing, Tianjin, Zhejiang, Jiangsu	Guizhou, Henan, Jilin, Hebei, Anhui
2022	Shanghai, Beijing, Tianjin, Zhejiang, Jiangsu	Jilin, Guizhou, Henan, Hebei, Gansu

Source. https://doi.org/10.7910/DVN/C7DCIB

Note. The data was compiled and calculated by the author based on historical editions of the China Statistical Yearbook.

Evolution of Relative Regional Disparities in Urban and Rural Residents’ Pension

(1) The relative regional disparities in urban and rural residents’ pension show a trend of first narrowing and then widening.

Based on formulas (2) and (3), we calculated the Gini coefficient and the Theil index of urban and rural residents’ pension from 2010 to 2022, as shown in Figure 1. It can be observed that the Gini coefficient and Theil index of urban and rural residents’ pension exhibit consistent trends, despite some numerical differences.

Figure 1.

Evolution of regional disparities in urban and rural residents’ pension from 2010 to 2022.

Specifically, the regional disparities in urban and rural residents’ pension showed a fluctuating downward trend from 2010 to 2018. However, from 2019 to 2022, a noticeable expansion trend in regional disparities emerged. Combining the analysis of absolute disparities mentioned earlier, it is evident that before 2018, while the absolute regional disparities in urban and rural residents’ pension were consistently widening (with the exception of 2011), the relative regional disparities were generally narrowing. From 2019 onward, both the absolute and relative regional disparities in urban and rural residents’ pension displayed an increasing trend.

(2) The relative regional disparities in urban and rural residents’ pension show a trend of “higher in the eastern region, intermediate in the western and northeastern regions, and lowest in the central region.”

Since both the Gini coefficient and the Theil index exhibit consistent trends, we chose the Gini coefficient to measure the relative regional disparities in urban and rural residents’ pension within the four major regions. The results are presented in Figure 2. It can be observed that the largest regional disparity in pension exists among the eastern provinces, followed by the western and northeastern regions, while the central region shows the smallest disparity.

Figure 2.

Gini coefficients of urban and rural residents’ pension in China and the four major regions from 2010 to 2022.

Specifically, only in the eastern region does the Gini coefficient for urban and rural residents’ pension exceed the national Gini coefficient. In contrast, the Gini coefficients for other regions are much lower than the national average. This indicates that the relative regional disparities in urban and rural residents’ pension are primarily widened by the disparities in the eastern region.

It is noteworthy that the Gini coefficients for urban and rural residents’ pension in the central, western, and northeastern regions have been fluctuating at relatively low levels since 2013, implying that the disparities within these regions are relatively small.

Results and Analysis of Theil Index Decomposition

Based on the four major regions, we utilized equation (4) to decompose the Theil index of urban and rural residents’ pension from 2010 to 2022. The results are presented in Figure 3. It can be observed that since 2013, the contribution of within-group disparities has roughly remained at around 60%, while the contribution of between-group disparities has remained at around 40%. This indicates that disparities within the four major regions are the main driving force behind the regional disparities in urban and rural residents’ pension. Combining the analysis above, it is evident that the relative disparities in urban and rural residents’ pension, primarily caused by disparities in the eastern region, have led to the widening of the national disparities.

Figure 3.

Theil Index decomposition based on the four major regions.

It is noteworthy that the contribution from within-group disparities has shown a slight decline in recent years, while the contribution from between-group disparities has shown a slight increase. This implies that the issue of regional disparities in urban and rural residents’ pension between the four major regions also deserves attention.

Regression-Based Inequality Decomposition Results and Analysis

Estimation Results and Analysis of the Regression Equation

Table 4 presents the results of the econometric regression. Regarding lagged factors, the previous period’s urban and rural residents’ pension has a significant positive impact on the current period’s pension, indicating a noticeable ratchet effect in the growth of urban and rural residents’ pension. As for economic factors, regions with higher economic development tend to have higher levels of pension for urban and rural residents. This suggests a close link between the pension levels for different provinces and their economic development, and the regional disparities in economic development will further lead to disparities in urban and rural residents’ pension across regions.

Table 4.

Regression Results.

Variables	(1)	(2)	(3)	(4)
Y_t−1	0.408*** (9.38)	0.410*** (9.52)	0.395*** (9.20)	0.380*** (8.86)
Income	0.683*** (11.19)	0.561*** (7.37)	0.803*** (7.16)	0.852*** (7.60)
Fiscal		0.194***(2.61)	0.165**(2.22)	0.199**(2.67)
Urban			−1.540**(−2.90)	−1.839***(−3.44)
Burden				−0.563***(−2.95)
Constant	−2.034***(−6.46)	−2.588***(−6.85)	−3.598***(−7.05)	−3.896***(−7.57)
R ²	0.8777	0.8802	0.8831	0.8860
Observations	372	372	372	372

Source. https://doi.org/10.7910/DVN/3CQR7T

Note. *** (2) and ** (1) indicate significance levels at 1% and 5%, respectively. The numbers in parentheses represent the t-values.

Concerning fiscal factors, the level of fiscal revenue in each province also has a significant positive impact on the pension for urban and rural residents. In other words, provinces with stronger fiscal subsidy capabilities provide higher pension benefits. Regarding population mobility, significant negative effects on the growth of urban and rural residents’ pension are observed when a large number of rural populations migrate to urban areas, which hampers the improvement of pension benefits for urban and rural residents.

Analyzing the pension burden factor, regions with heavier pension burdens tend to have lower levels of pension for urban and rural residents. Overall, areas with higher pension bases, more advanced economies, and stronger fiscal subsidy capabilities tend to provide relatively higher pension benefits for urban and rural residents. On the other hand, regions experiencing net population outflow and heavier pension burdens tend to offer relatively lower pension benefits for urban and rural residents.

Regression-Based Inequality Decomposition Results and Analysis

Based on the regression-based inequality decomposition results shown in Table 5, we can observe that economic factors are the primary driver, contributing an average of 39.23%, behind the widening regional disparities in urban and rural residents’ pension benefits. This suggests that the imbalanced economic development is the main cause of the increasing disparity in pension benefits between urban and rural areas in China. Over the years, the contribution rate of economic factors has slightly decreased from 44.30% in 2011 to 36.13%, possibly due to China’s recent emphasis on promoting coordinated regional economic development.

Table 5.

Inequality Decomposition Results.

Year	Lagged factor (%)	Economic factor (%)	Fiscal factor (%)	Population mobility (%)	Pension burden (%)	Other factors (%)
2011	27.97	44.30	12.91	−28.64	−1.54	45.00
2012	34.48	43.01	14.32	−28.82	−4.69	41.71
2013	36.95	29.66	12.75	−19.62	−3.46	43.71
2014	29.58	33.94	13.35	−22.24	−3.58	48.95
2015	39.39	39.73	18.77	−25.91	−4.23	32.26
2016	31.51	41.41	19.13	−25.47	−5.37	38.80
2017	31.28	38.69	17.29	−22.21	−4.59	39.54
2018	38.44	43.66	19.69	−24.68	−5.41	28.30
2019	31.63	42.38	18.88	−20.45	−5.73	33.30
2020	32.48	40.26	17.05	−18.76	−6.25	35.22
2021	32.40	37.55	15.31	−16.69	−6.27	37.70
2022	33.04	36.13	14.96	−15.98	−5.47	37.32
Average	33.26	39.23	16.20	−22.46	−4.72	38.48

Source. https://doi.org/10.7910/DVN/F4Q8R6

Apart from other factors, lagged factors are the second significant contributor to the widening regional disparity in pension benefits, with an average contribution rate of 33.26%. This implies that regions with higher pension benefits for urban and rural residents will continue to maintain higher levels, and vice versa. Notably, the contribution rate of lagged factors has shown an overall upward trend, increasing from 27.97% in 2011 to 33.04% in 2022. This trend is consistent with the solidification of high and low pension benefit regions, as analyzed earlier in this paper.

At the same time, financial factors contribute an average of 16.20% to the regional disparity in pension benefits for urban and rural residents. Despite the central government’s efforts to implement differentiated subsidy policies to narrow the gap in regional financial strength, local fiscal subsidies have reversed this trend and widened the disparity in pension benefits between urban and rural areas. Over the years, the contribution rate of financial factors has fluctuated, rising from 12.91% in 2011 to 19.69% in 2018, then gradually declining to 14.96% in 2022. Despite the recent reduction in this contribution rate, financial factors still play a significant role in the process of widening regional disparities in pension benefits for urban and rural residents.

Population mobility factors favor narrowing the regional disparity in pension benefits, with an average contribution rate of 22.46%. This is mainly due to the fact that population mobility to some extent inhibits the growth rate of pension benefits for urban and rural residents. Over the years, the contribution rate of population mobility factors has shown a decreasing trend, likely due to the relatively high urbanization rate and a slowdown in the net outflow of rural population.

Pension burden factors contribute to narrowing the regional disparity in pension benefits to some extent, with an average contribution rate of 4.72%. This contribution rate has significantly increased from 1.54% in 2011 to 5.47% in 2022. Given the increasingly severe issue of population aging in recent years, the role of pension burden factors in reducing the regional disparity in pension benefits for urban and rural residents will become more prominent.

Oaxaca-Blinder Decomposition Results and Analysis

Based on the previous analysis, it is evident that the urban and rural pension in the eastern region is significantly higher than in other regions. Additionally, the disparity in urban and rural pension between the central, western, and northeastern regions is relatively small. Therefore, we divided the four major regions into two groups: The eastern region and the non-eastern region (comprising the central, western, and northeastern regions). We considered the latter as the reference region and the eastern region as the non-reference region. Using equations (11) to (13), we conducted a decomposition analysis of the rationality of urban and rural pension disparities, and the results are presented in Table 6.

Table 6.

Oaxaca-Blinder Decomposition Results.

Year	Rational part (%)	Irrational part (%)
2011	69.33	30.67
2012	61.47	38.53
2013	55.70	44.30
2014	59.34	40.66
2015	60.48	39.52
2016	58.60	41.40
2017	56.30	43.70
2018	56.25	43.75
2019	54.84	45.16
2020	55.02	44.98
2021	53.24	46.76
2022	55.51	44.49
Average	58.01	41.99

Source. https://doi.org/10.7910/DVN/XEGJJL

From the table, it can be observed that the average contribution rates of the rational and irrational parts of the urban and rural pension disparities between the two groups are 58.01% and 41.99%, respectively. This means that 58.01% of the relatively higher urban and rural pension in the eastern region can be explained by the advantages it possesses in lagged factors, economic factors, fiscal factors, population mobility, and pension burden factors. The remaining 41.99% can be attributed to regional discrimination and is deemed irrational.

Of note, the irrational part has generally expanded, increasing from 30.67% in 2011 to 44.49% in 2022, while the rational part has diminished, decreasing from 69.33% in 2011 to 55.51% in 2022. This is highly consistent with the previous findings of the widening regional gap in pension benefits for urban and rural residents, particularly due to the rapid pension growth in the eastern region.

Discussion

Overall, the findings of this study further deepen the existing research. Many studies have pointed out that income inequality among the elderly is higher than among the younger population, and pension inequality is a major contributing factor (Hanewald et al., 2021; J. Li et al., 2020). However, these studies mainly focus on the inequality between different pension plan groups, particularly the disparity between vulnerable groups like rural residents and urban informal workers, and privileged groups like civil servants and enterprise employees, and explicitly highlight that rural residents and urban informal workers receive disproportionately lower pension benefits (L. Wang et al., 2014; H. Wang, Huang & Sun, 2019; H. P. Wang & Huang, 2023). This study further emphasizes that not only are their pension benefits lower, but there are also significant regional disparities, which are crucial in causing income inequality among the elderly. Especially, the regional disparity in pension benefits for urban and rural residents far exceeds the regional disparity in disposable income, which is worthy of reflection by the Chinese government. Therefore, the inequality in pension benefits in China should not be limited to discussions of the significant gaps between systems but should also pay close attention to the considerable regional disparities within the PSURR itself.

It is worth noting that in the pension disparities between urban and rural residents in China, the average pension benefits in the eastern region are the highest, but the disparity among provinces in the eastern region is also the largest. A closer analysis reveals that within the eastern provinces, only a few provinces have higher pension benefits, while most provinces still have lower pension benefits. For example, in 2022, the average pension benefits in Shanghai and Beijing have reached 18,620.69 and 17,398.37 CNY/year, respectively, but the range of average pension benefits in other eastern provinces is only between 1,688.59 and 6,193.85 CNY/year. This indicates that the government needs to address not only the pension inequality between the four major regions but also the pension inequality within the eastern region itself.

Unlike other studies that solely emphasize the impact of a single factor on the regional disparity in pension benefits between urban and rural residents in China (T. Liu & Sun, 2016; Y. Yang & Zhou, 2017; L. Zhang, Middlemiss, et al., 2023), this study attempts to integrate lagging factors, economic factors, fiscal factors, population mobility factors, and pension burden factors into a unified analytical framework. This approach facilitates a deeper investigation into the reasons behind the regional disparity in pension benefits for urban and rural residents in China. The study shows that uneven economic development remains the primary cause of the widening gap in pension benefits between urban and rural residents in China. This means that to narrow the gap, China must focus on coordinated regional economic development, especially accelerating the economic development level of the central and western regions. Additionally, the study finds that promoting population mobility is conducive to narrowing the regional disparity in pension benefits for urban and rural residents. Apart from the previously revealed factor that this may suppress the growth rate of pension benefits for urban and rural residents to some extent, there may be other reasons. For instance, part of the mobile population may join other pension plans, thereby obtaining higher pension benefits in the future. More likely, the population migrating from underdeveloped areas might be able to earn higher incomes by engaging in non-agricultural industries, thus being more capable of choosing higher pension insurance payment grades, which also helps improve their pension benefit levels. Improving the pension benefit levels of the mobile population from underdeveloped areas naturally helps narrow the regional disparity in pension benefits for urban and rural residents to some extent.

Another question worth discussing is, to what extent should the regional disparity in pension benefits for urban and rural residents in China be considered reasonable? Existing literature has not provided a clear answer. The Oaxaca-Blinder decomposition results of this study indicate that 41.99% of the substantial regional disparity in pension benefits for urban and rural residents in China is unreasonable. However, the conclusion of this paper is based on selecting non-eastern regions as the reference region, and different results may be obtained if the eastern region is chosen as the reference region. This study argues that, in fact, relative to the level of economic development, the overall pension benefits for urban and rural residents in China are on the low side. It is not that the pension benefits for urban and rural residents in the eastern regions are too high, but rather that those in other regions (central, western, and northeastern) are too low. Therefore, the focus of the Chinese government should be on significantly increasing the pension benefit levels for urban and rural residents in the central, western, and northeastern regions, rather than reducing the pension benefits for those in the eastern regions, and even further increasing the pension benefit levels for urban and rural residents in the eastern regions. To some extent, this study points out the direction for improving the basic pension insurance system for urban and rural residents in China, which is beneficial for attracting relevant scholars to further explore this topic.

However, despite our efforts, this study still has certain limitations. Firstly, due to data availability, the data used in this study is at the provincial level, making it difficult to capture characteristics at the city and county levels when measuring pension disparities between urban and rural residents. Obtaining data at these levels in the future would further enhance this research. Secondly, an important limitation of this paper lies in the timeliness of the data, particularly whether it adequately reflects the current state of the pension benefit disparity. Due to the delayed release of data in China’s National Statistical Yearbook, we were only able to access data up to 2022. Future research should consider using more updated data sources to ensure the consistency of the findings with the current situation. Additionally, the relatively small sample size used in this paper may, to some extent, affect the accuracy and applicability of the research results. Future studies could address this limitation by utilizing larger sample sizes of micro-level data. Finally, based on the results of the regression-based inequality decomposition, the average contribution of other factors is 38.48%, indicating that there may be other significant factors worthy of further investigation.

Conclusions and Policy Implications

Conclusions

Based on the provincial panel data of China from 2010 to 2022, this study measured and decomposed the disparities in pension benefits between urban and rural residents. The main conclusions are as follows:

Firstly, the pension benefits for urban and rural residents in China are not only relatively low but also exhibit significant regional disparities. In terms of absolute regional disparities, the pension gap between urban and rural residents is widening, with the eastern region having significantly higher pension benefits than other regions, showing a tendency of regional polarization. Regarding relative regional disparities, the pension gap between urban and rural residents initially decreased and then expanded. Among the eastern provinces, the pension gap is most significant, while the western and northeastern provinces exhibit intermediate disparities, and the central region has the smallest disparity.

Secondly, the contributions to the pension disparities between urban and rural residents from within the four major regions and between them are 60% and 40%, respectively. The significant pension disparity within the four major regions is primarily driven by the eastern region. The main feature of the pension disparity between the four major regions is that the pension benefits for urban and rural residents in the eastern region are significantly higher than those in the central, western, and northeastern regions.

Thirdly, the factors influencing the pension disparities between urban and rural residents are as follows: The average contribution rates of lagging factors, economic factors, fiscal factors, population mobility factors, and pension burden factors are 33.26%, 39.23%, 16.20%, −22.46%, and −4.72%, respectively. In terms of factors widening the pension disparities, economic factors are the most significant, primarily due to regional economic imbalances. Lagging factors are the second most significant, indicating a trend of the polarization of pension values in different regions. Fiscal factors rank third and are mainly driven by differences in local fiscal subsidy capacity. Regarding factors narrowing the pension disparities, population mobility factors are the most important, although their contribution rate is decreasing. Pension burden factors rank second and, despite having a relatively smaller contribution rate, their contribution is increasing.

Fourthly, in the pension disparities between urban and rural residents, the proportions of reasonable and unreasonable parts are 58.01% and 41.99%, respectively. The significantly higher pension benefits in the eastern region, relative to the central, western, and northeastern regions, can be explained by 58.01% due to advantages in lagging factors, economic factors, fiscal factors, population mobility factors, and pension burden factors. The remaining 41.99% is due to regional discrimination and is considered unreasonable. However, the unreasonable part is expanding over the years, while the reasonable part is shrinking.

Policy Implications

Based on the research conclusions above, to effectively adjust the regional disparity in pension benefits between urban and rural residents in China and further improve the basic pension insurance system for urban and rural residents, this study mainly proposes the following policy recommendations:

(1) Further increase the basic pension benefit standards for urban and rural residents in China to address the issue of generally low pension benefits. On one hand, the central basic pension standard, currently only 123 yuan/month (2024), which is still low, should be increased appropriately according to the central finance’s affordability. On the other hand, the local basic pension standards in the central, western, and northeastern regions should be further increased. Limited by the financial strength of these regions, the Chinese government can support these regions in raising the basic pension standards through appropriate transfer payments, to narrow the gap in pension benefits between urban and rural residents across different regions.

(2) Promote coordinated regional economic development to narrow the gap in economic development across different regions, which in turn would reduce the disparity in pension benefits for urban and rural residents. This study has shown that economic factors are the primary cause of the disparity in pension benefits between urban and rural residents. Therefore, the fundamental measure to narrow this gap is to promote coordinated regional economic development, especially accelerating the economic development of the central, western, and northeastern regions. This requires developing the regional economy according to the concept of coordinated development, promoting regional economic convergence toward common prosperity through rational division and collaboration among regions.

(3) Promote the rational and orderly mobility of labor, increasing pension subsidies for urban and rural residents in areas with net outflows of population. The Chinese government should create conditions to encourage labor mobility from rural to urban areas and from underdeveloped to developed regions. This not only allows the mobile population to earn higher incomes, enabling them to choose higher pension insurance payment grades but also gives them the opportunity to participate in pension insurance plans like PSCP and PSUE, which offer higher pension benefits. Additionally, since the collective economic development in areas of net population outflow is lagging, reducing the collective subsidy part of the urban and rural residents’ pension, the Chinese government needs to provide subsidies in certain forms.

(4) Reasonably adjust the regional disparity in pension benefits for urban and rural residents in the eastern regions to avoid the dichotomy or polarization of pension benefits. This study shows that the regional disparity in pension benefits for urban and rural residents in the eastern regions is relatively large, which also needs significant attention. On one hand, the rationality of the disparity in pension benefits between urban and rural residents in the eastern regions should be reasonably assessed, and the unreasonable part should be appropriately adjusted. On the other hand, the growth rate of pension benefits for urban and rural residents within the region should be reasonably coordinated and controlled to further enhance the fairness of pension adjustment policies.

(5) Take into account factors such as economic development, pension burden, local finance, and population mobility to further improve the adjustment mechanism for pension benefits for urban and rural residents. The Chinese government could consider giving certain policy preferences to regions that are economically underdeveloped, have a heavy pension burden, weaker local finances, and a net outflow of population, implementing differentiated pension benefit adjustment policies.

Footnotes

Acknowledgements

The authors gratefully acknowledge the reviewers.

ORCID iDs

Songbiao Zhang

Huilin Wang

Ethical Considerations

Not applicable. This study utilizes secondary publicly available data and does not require ethical or moral review.

Author Contributions

All authors contributed to the study conception and design. Conceptualization, S.Z. and H.W.; methodology, S.Z. and X.W.; writing—original draft preparation, S.Z., X.W., and H.W.; writing—review and editing, S.Z., X.W., and H.W. All authors have read and agreed to the published version of the manuscript.

Funding

The author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: This study was supported by the National Science Foundation of China (Project No. 42101172) and the Hunan Office of Philosophy and Social Science (Project No. 22YBA133).

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Data Availability Statement

All data used in this study are included within the manuscript. For any additional inquiries or further details, please contact the corresponding author.

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