"Raising Basic Pension by 100,000 Won Lowers Labor Market Participation for Ages 65-70...Careful Review Needed for Support"

Kim Hak-hyo, Sogang University Doctoral Program, Presents Analysis Results in Finance Society Paper

[Image source=Yonhap News]

[Sejong=Asia Economy Reporter Kim Hyunjung] An analysis has found that raising the basic pension amount by about 100,000 won for elderly people aged 65 and over in households with certain income levels lowered the labor market participation probability of the 65-70 age group.

On the 14th, Kim Hak-hyo, a doctoral student in the Department of Economics at Sogang University (first author), and Kim Hong-gyun, a professor in the Department of Economics at Sogang University (corresponding author), diagnosed this in their paper titled "Analysis of the Impact of Basic Pension Amount Increase on Elderly Labor Market Participation," published in the Korean Public Finance Association's Public Finance Research. The authors analyzed the effects on elderly labor market participation from three past increases in the basic pension amount.

The analysis showed that when the basic pension amount increased by about 100,000 won in 2014, the labor market participation probability of the elderly decreased by approximately 2.04 percentage points. When broken down by age group, the labor market participation probability of those aged 65 to 70 decreased by about 2.82 percentage points. However, for other age groups such as 71-75, 76-80, and 81 and older, the increase in the basic pension amount did not have a significant impact on labor market participation probability.

The authors interpreted this by stating, "Considering that the likelihood of elderly people aged 70 and over participating in the labor market is extremely limited, these estimated results mean that the 2014 increase in the basic pension amount had a non-negligible effect on the labor market participation probability of the elderly."

They also analyzed the results from 2018 and 2009, when the basic pension amount was raised by about 40,000 to 50,000 won, but concluded that the increase did not significantly affect the labor market participation probability of the elderly. This is explained by the fact that, unlike the 100,000 won increase in 2014, the increase levels were not sufficient to reduce labor market participation.

The authors suggested, "While the basic pension system is necessary to address the blind spots in the national pension and stabilize the lives of low-income elderly households amid high elderly poverty rates, considering the future fiscal scale and the health status of the elderly, support that significantly reduces the labor market participation probability of elderly people aged 65 to 70 should be carefully reviewed for the efficiency and sustainability of the system."