Summary of Key Points
This article analyzes the mechanism surrounding the upper and lower limits of social insurance contribution bases, with a focus on the actual effects of lowering the lower limit in 2019: Reducing the lower limit significantly reduces the cost for companies to employ low-income workers, encourages them to hire more (thus stabilizing employment) and invest more, without decreasing the total revenue of social insurance funds. It also proposes future reform directions—continuing to lower the lower limit and appropriately raising the upper limit, while strengthening social insurance enforcement, which will both stabilize employment and promote investment, as well as adjust income distribution.
I. The Upper and Lower Limits of Social Insurance Contribution Bases: How Are They Set, and What Are the Issues?
The upper and lower limits of social insurance contribution bases are determined as follows: If your salary is below 60% of the local average wage (referred to as the "average social wage"), you must contribute based on 60% of the average social wage; if it is above 300% of the average social wage, you must contribute based on 300%.
Why are these limits set this way? The初衷 is to collect more social insurance funds and to ensure that low-income individuals receive adequate benefits in their retirement. However, this poses a problem for companies: Employing low-income workers actually becomes more expensive. For example, the contribution rate for pension insurance is 16%:
- If an employee's salary is 30% of the average social wage (e.g., if the average wage is 10,000 yuan and the employee's salary is 3,000 yuan), the company must contribute 60% of 3,000 yuan, which amounts to 960 yuan. Together with the employee's salary of 3,000 yuan, the total cost is 3,960 yuan, or 1.32 times the salary.
- If the employee's salary is 300% of the average social wage (e.g., 30,000 yuan), the company must contribute 4,800 yuan, for a total cost of 34,800 yuan, or 1.16 times the salary.
- The higher the salary, the lower the proportion of the total cost (salary + social insurance contributions) relative to the actual salary becomes, a phenomenon known as "regressivity"—meaning it's more costly for companies to employ low-income workers, which naturally discourages them from hiring more.
II. Why Does Lowering the Lower Limit Encourage Companies to Hire More?
In 2019, the government changed the method of calculating the average social wage (from only including non-private entities to including private enterprises), resulting in lower lower limits in many regions. Studies have shown that for every 10% decrease in the lower limit, the number of employees hired by companies increases by 2.41%.
Why is this effect so significant?
- For companies with salaries below the lower limit (e.g., those that employ many low-income workers) and those that have been paying social insurance diligently (without evasion), the reduction in costs is more direct. Small companies, which often face difficulties in financing, cannot pass on the increased social insurance costs to consumers through price hikes. Therefore, with more funds available, they can hire more employees.
- For example, if an employee's salary was previously 3,000 yuan and the contribution was based on 6,000 yuan, with a lower limit of 5,000 yuan, the company would now contribute 800 yuan, saving 160 yuan. With fewer costs, they are more inclined to hire additional staff.
III. Will Hiring More Workers Displace Investment?
Some worry that companies will use the extra money to hire workers instead of investing in equipment or expanding facilities. However, this is not the case—lowering the lower limit actually encourages investment.
This is because in most companies, "people" and "machines" are complementary. For instance, if a factory hires more workers, it needs to buy more machinery; if new equipment is purchased, it requires more staff to operate it. Thus, when the cost of hiring increases, companies will invest more to accommodate these additional employees. Research shows that after the lower limit was lowered, the probability of companies investing increased by 1.67 percentage points for every 10% decrease in the lower limit.
IV. Will Lowering the Limit Deplete Social Insurance Funds?
There is no need to worry about this. Although the average contribution per person may decrease, the total amount contributed does not diminish, and the government's ability to subsidize social insurance funds may even increase:
- Although the average contribution per person is lower, the increased number of employees compensates for this reduction.
- As company sizes expand, their revenue grows, leading to higher contributions in VAT and income tax, providing the government with more resources to support social insurance funds.
V. Future Reform Directions: Lowering the Lower Limit, Raising the Upper Limit, and Strengthening Enforcement
Based on these findings, the article suggests two reform measures:
1. Continue to lower the lower limit:
- Either directly reduce it further (e.g., from 60% to 50%) or reduce the frequency of adjustments (from once a year to every two to three years to prevent the lower limit from rising too quickly with average wage increases).
- It's important to note that this aims to ensure low-income workers contribute based on their actual salaries, without affecting those with higher incomes.
2. Appropriately raise the upper limit:
- Either increase it (e.g., from 300% to 350%) or apply lower contribution rates to amounts exceeding the upper limit (e.g., change the rate from 16% to 8% for excess amounts).
- This will not affect employment or investment but will encourage higher-income individuals to contribute more to social insurance, thereby adjusting income distribution.
Finally, it is necessary to strengthen social insurance enforcement to prevent companies from deliberately using lower contribution bases to evade their obligations, ensuring the policy achieves its intended goals.
This article demonstrates through data that adjusting the upper and lower limits of social insurance contribution bases can help reduce corporate burdens, stabilize employment, protect social insurance funds, and adjust income distribution—a win-win reform approach.