Labor market conditions and social insurance in China

•I model that a tighter labor market incentivizes social insurance participation.•Participation in a large firm-panel is related to regional tightness in 2000-2007.•Increased tightness over the period was an important driver of participation.•Larger responses existed in private firms and firms with more low-educated workers.•Over the coming years, tighter markets can aid implementation and reduce inequality.

This paper provides micro-level evidence on the relationship between labor market conditions and social insurance participation among Chinese industrial firms. I find that the increased scarcity of labor over this period was a quantitatively important driver of participation. Moreover, a comparison of the responses in different segments of the labor market shows that the response was relatively stronger in sectors with larger shares of uninsured workers, namely in private firms, those with a larger share of low-educated workers, and those without labor unions. The results suggest that a tighter labor market in the years ahead can aid policy makers to implement social insurance programs and combat insurance inequality.