How Does Public Sector Employment Affect Household Saving Rates? Evidence from China

Abstract This paper investigates the impact of public sector employment on household saving rates in China using representative household‐level data. After controlling for variables such as income, risk attitude, financial literacy, and demographic factors, we show that households headed by public sector employees have higher saving rates than other households. This positive association persists after controlling for self‐selection bias. We explain this striking finding by two empirical facts: First, public sector employees are more likely to save for their children. Second, public sector employees have a higher saving capacity than non–public sector employees due to higher hidden benefits.