Panel Paper: Social Security and Retirement in Korea: Evidence from Longitudinal Data

Saturday, March 10, 2018
Burkle 12 (Burkle Family Building at Claremont Graduate University)

*Names in bold indicate Presenter

Hankyung (Kate) Jun, University of Southern California

Labor force participation of older males in South Korea (65-69 years of age) is higher than other OECD countries, with the effective labor market exit age ranking the highest. Elderly poverty rate is also high, indicating the possibility that older adults in Korea need to work more for economic stability. Korea’s largest social security system for the aged – The National Pension Scheme (NPS) – was created in 1988 and achieved universal coverage in 1999. It has been known that in many countries, government pension programs have been the underlying force behind the decline in labor force participation of the older population. However, Korean seniors do not seem to retire around the official retirement age of 60, implying that pension benefits from the government may be insufficient for later life. In this study, I use five waves (2006-2014) of the Korean Longitudinal Study of Ageing (KLoSA) dataset and examine the impact of social security wealth on retirement decisions for older adults living in South Korea. The methodology used in this paper is a widely used model in retirement studies, which have been applied to various other countries, yet to South Korea. The unique labor market characteristics of Korea – late retirement, high rate of self-employed, high rate of elderly poverty – will provide valuable insights to other countries experiencing population aging. In this study, I find that social security benefits received from the NPS do not play a big role in retirement decisions of the elderly. Also, the incentives for retirement built into the national pension system do not seem to contribute much on early retirement or even retirement around the eligible age of 60, especially for the self-employed. The results in this study may be affected by the fact that the program itself has a short history, and a majority of the sample may not have been eligible for full pension payment which requires 20 years of contribution. However, with the high rate of elderly poverty and high labor market exit age, it seems apparent that the current social security system in South Korea is lacking security.