# KDI News
Population Aging in Korea: Economic Impacts and Policy Issues
edited by Kyungsoo Choi, Hyungpyo Moon, Inseok Shin, Chin Hee
Hahn
Chapter I. Introduction: What are the Issues in Aging?
This report is the output of the first year’s research in the “Economic
Impacts of Population Aging in Korea and Directions for Policy Responses” project
which is KDI’s national project during 2003~2004. Korea’s population is
aging very rapidly compared with other countries’ past experiences. Such a
rapid aging is a result of Korea’s belated industrialization and fast economic
growth thereafter. Aging brings about economic impacts, and conceptually they
can be classified in two categories—one is the impact caused by population aging
itself, and the other is impact that stems from inadequateness of institutions
as burdens are put on the system by the population aging. According to foreign
countries’ experiences the latter are even more important. As such, responses
for aging require institutional reforms. However reforms of institutions that
involve interests of a wide range of people are never easy, and in no country
the reforms were achieved early enough. Here lies the seriousness of rapid population
aging in Korea, that is, the time for reforms are not sufficient, and also the
urgency of research on population aging, that is, we need to set the direction
for reform early enough. Also, the economic impact differs among countries
since different countries have different socio-economic institutions. They need
to be evaluated if the policy directions are to be determined. The economic
impacts of aging in Korea would not be the same as in other countries, and the
objective of research in the first year has been to identify the issues and
seek answers to the questions raised by such issue. Most researchers took empirical
approaches as the issues required quantitative evaluation.Chapter I surveys
and identifies the issues in aging in the Korean context in the fields of labor,
public finance, financial market, and macro economy. Some of those issues are
addressed in corresponding Chapters, and those not covered will be left for
the second year’s research agenda.
Chapter II. Analysis on Population Aging
In chapter II, “Analysis on Population Aging in Korea” (by Kyungsoo Choi)
introduces prospect of population aging in Korea, analyzes the low fertility
trend, and reviews the effects of policy on fertility in foreign countries.
The prospect of Korea’s rapid population aging is the major result in the recent
long-term population projection of KNSO (Korea National Statistical Office)
published in 2001. The projection reveals that Korea will join the aged societies—defined
as countries with the ratio of population aged 65 and over to total population
above 14%—in 2019, 19 years after she became an aging society with the ratio
above 7% in 2000. Further, it is predicted that Korea will become a super-aged
society in 2026 with the ratio above 20%. Such a pace of aging is much quicker
compared with the advanced countries’ past aging experiences, where the transition
took several decades. The paper begins with the issue of how we should view
the rapid population aging in Korea. An international comparison reveals that
the historical pattern of population aging and income growth in Korea is very
similar with those in advanced countries except that they happened much earlier
in those countries. From the commonality of trends and patterns, he infers that
Korea’s rapid population aging is a result of her belated industrialization
and rapid economic growth thereafter.Korea’s rapid aging is a result of
the low fertility trend consistent since the mid-1980s. Hence, in the short-
to mid-term, the progress of aging will not be much affected by the future fertility.
But an analysis of the low fertility trend is necessary not only to determine
policy directions for fertility in face of its recent further drop but also
to evaluate robustness of the long-term population projection.Korea’s total
fertility rate is currently lower than those in most advanced countries, standing
at 1.30 in 2001 and 1.17 in 2002. The fertility drop is accompanied by rising
marriage and childbearing ages, but estimated cohort completed fertility rate
is also dropping. Hence, fertility drop in Korea is not only a result of deferred
childbirth timing but also a result of reduction in number of children demanded.
An explanation on Korea’s low fertility needs to answer both the belated timing
and the reduced childbirth in life by Korean women.Economic theory suggests
that if the demand for quality of children rises, that is, if investment in
children increases, the demand for number of children may decrease although
expenditure for children rises as income grows. And demand for quality rises
if human capital investment becomes more productive or women’s time cost becomes
more important. In Korea, households’ expenditures in education have been increasing,
and the share of college-educated mothers, who tend to spend more on their children’s
education, is rising fast. The most frequent responses for reasons of low birth
in surveys are the high cost of child-rearing, especially educational cost.
Thus, apparently, it seems that low completed fertility rate in Korea is related
to high child-rearing cost such as educational cost and rising educational level
of women.Data available for childbirth timing are birth records during 1982
to 2001. Since even the 20 year period in the data set is not long enough to
cover one cohort’s complete fertility period, empirical analysis is focused
on analyzing the timing of first birth among women whose first childbirth was
in their twenties. Data showed that the average first birth age has increased,
but the trend is not very strong within educational groups, and highly educated
women tend to give the first birth late. The trend suggest that general rise
in the educational level of childbearing women is an important cause for rising
first birth age in Korea. The implication is that the fertility rate may not
further drop since the upgrading of educational level will level off in the
near future. Further, among the recent cohorts, it is found that the first birth
age rose among those without jobs, while those among the employed remained relatively
stable. The trend suggests that recent cohorts, for whom the severe recession
following the economic crisis at the end of 1997 was in their late 20s, may
have had to defer their first birth due to economic reasons. Then, the recent
record-low total fertility rate may be transitory, reflecting the influence
of the economic crisis on the childbearing decisions.Foreign countries’
experience of policy effects on fertility shows that generally the effect is
not significant. Subsidies on childbearing cost do not influence women’s decision
on childbearing since the main cost of childbirth is child rearing cost and
the human capital loss, which are spread over the lifecycle after the childbirth.
Subsides for childcare facilities and childbirth/parental care leave are relatively
effective among other policies for fertility although their effects are not
large, either. Such policies should be viewed as “family policies,” which
assists family lives and should be enacted even though they are not very effective
in increasing fertility as those are for the welfare of people and not a means
of “population policy” whose aim is at increasing population.
Chapter III. Macroeconomic Impact of Aging
Chapter III is comprised of two papers, which address the issue of macroeconomic
impact of population aging in Korea using different methods. The first paper,
"Macroeconomic Impacts of Population Aging in Korea," (by Kiseok Hong
) examines the long-run macroeconomic impact of population aging in Korea, using
a computable general equilibrium (CGE) model of the Auerbach-Kotlikoff type.
Since Korea is one of the most rapidly aging countries, it is particularly
important to predict the impact of the aging trend in Korea. While there
are many studies on the population aging of Korea, most of them follow a partial
equilibrium approach. By using a CGE model, this study provides a more
integrated view on Korea's aging population. A CGE model is particularly
useful when evaluating the impacts of population aging separately from other
long-run changes. Korea is a transitional economy in many respects. For
example, even without the aging trend, the GDP growth rate in Korea may well
slow down as predicted by the standard growth theory. In order to determine
the independent contribution of population aging on Korea's macroeconomic changes,
it is more convenient to develop a computational model rather than an empirical
model. Under standard parameter values, the CGE model of this paper produces
simulation results that are broadly consistent with common perceptions. First
of all, the model shows that, while the saving rate in Korea is currently at
a level higher than the steady state, it will continue to fall over the next
fifty years to reach a level below the steady state. This pattern is not
surprising, since the CGE model of this paper is based on the life-cycle hypothesis.
Korea's population, while currently young, is aging rapidly. According
to the model, this demographic change generates both the currently high saving
rate and the ensuing drop. Patterns in other macroeconomic indicators also
confirm the fact that the aging process in Korea is a movement from a young
population to an old one. The interest rate is currently high in Korea,
because the young age structure of the population makes labor more abundant
than capital. As the population ages, however, the capital/labor ratio increases
lowering the interest rate. Similarly, per capita GDP will change from the current
high level to a low level (compared to the benchmark case with a uniform age
distribution) as the portion of young people decreases. The portion
of young people is positively correlated with per capita GDP because the young
generation enjoys a higher level of productivity (intergenerational differences)
and because people make more income when young (over the life-cycle differences).
To summarize, the simulation results of this paper show that the Korean
economy will continue to benefit from its young population for a while. However,
since the population is aging very rapidly in Korea, the advantage of young
population will soon disappear. Also, for the growth rate of per capita
GDP, the impact of population aging will be observed even earlier. As
per capita GDP converges from the current high level to the steady state, the
growth rate will start falling in the next few years. To be sure, these
macroeconomic changes may not necessarily be negative. For example, despite
the fall in the GDP growth rate, the welfare level of each individual may not
decrease. For more rigorous evaluation of population aging, one needs
to examine the welfare implications. Welfare analysis of this paper shows
that population aging has different impacts on different generations. Future
generations that enter the labor market in about 2030 or after (when the macroeconomic
impacts of aging are fully realized) are expected to benefit from the demographic
changes, while generations that enter the labor market before that time are
expected to lose. This result is based on the simple principle of factor
pricing, i.e., that relatively scarce factors are priced high. In the
present and near future, labor is relatively abundant and thus the supplier
of labor (young generation) gets worse off. When the current young generation
becomes old, however, labor will be relatively scarce and thus the supplier
of labor will become better off. This suggests that impacts of population aging
are more complicated than the growth rate alone suggests. These results
do not change substantially when the national pension system is introduced in
the model. One thing to note here is that the pension system of Korea
is not sustainable in its current form and thus the model cannot be solved without
assuming a specific pension reform scenario. In this study, we assume
that the current pension system is maintained without any reform until the fund
is exhausted when the system is abolished altogether. As a result of this
extreme assumption and some other institutional factors, the introduction of
the pension system causes sharp short-run fluctuations in the forecasts of macroeconomic
indicators. Main patterns in the forecasts, however, are roughly the same
as before. One important difference is that the pension system only increases
the welfare of the current old generation at the expense of the current young
and future generations. The results of this study have several policy implications.
First, it is not clear whether population aging is necessarily bad for
the economy as a whole. While the growth rate falls, individual welfare
may even increase depending on generations. This suggests that economic
policies in the aged economy should not stick to aggregate growth alone but
pay more attention to intergenerational issues. Second, population aging
and the resulting macroeconomic changes are a very slow process. As
mentioned above, population aging affects the economy with great lags. Thus,
policies for population aging should be made with exceptionally long time horizon.
Third, the current national pension system of Korea only exacerbates the
intergenerational welfare differences that result from population aging. According
to the analysis of this study, current and future young generations are adversely
affected by the aging trend and by the national pension system. Policies
to alleviate the welfare loss of these generations, such as immediate pension
reform, are needed.We suspect that main conclusions of this study will change
drastically in more realistic models. Still, existence of intergenerational
bequests and the possibility of endogenous fertility are important topics for
future research. Also, it will be interesting to apply the current model
to the past period and see how well the model explains the past performance
of Korea.The second paper, "Population Aging and Economic Growth: Demographic
Structure or Demographic Change?"(by Chin Hee Hahn ) addresses the issue
of whether per capita income growth rate will decline as a result of population
aging utilizing cross-country data. Two contrasting theoretical models provide
the framework for empirical analysis of this paper; neoclassical general equilibrium
overlapping generations models, such as Mills(1999), and growth theories modeling
endogenous fertility and endogenous growth, such as Becker, Murphy, and Tamura(1990)
and Lucas(2002). These two strands of theories have different implications on
the relationship between population aging and per capita income growth. The
former theories suggest that population aging will slow down per capita income
growth primarily by reducing saving rate. By contrast, the latter theories suggest
that population aging is not necessarily associated with reduction in per capita
income growth rates, in so far as population aging and the associated decline
in working age population ratio reflect the forces driving demographic transition
which was initiated by the beginning of industrialization process. In fact,
these theories imply that a country experiencing faster demographic transition
is also likely to exhibit higher per capita income growth rate. Then, according
to the former theories, demographic structure itself is likely to be systematically
associated with economic growth while the speed of demographic transition, not
the level of demographic structure itself, is likely to be systematically associated
with economic growth according to the latter theories. This paper first
shows that, compared with other countries, the most distinguishing demographic
characteristics of Korea during the 1961~1990 period lies in the speed of changes
in various demographic measures, not in the level of such measures. For example,
analogous to its high economic growth rates, the fall in population growth and
fertility rates and the rise in working age population ratio in Korea were remarkable.
Simple correlation analysis revealed that both levels and changes in demography
measures were significantly associated with per capita income growth rates in
expected ways, giving support to both hypotheses. However, although the fact
that changes in fertility rate and in population growth rate are significantly
correlated with per capita income growth is consistent with endogenous demographic
transition and growth, it is not clearly explained by neoclassical overlapping
generations models. The results from cross-country regressions are strongly
supportive of theories by Becker, Murphy, and Tamura(1990) and Lucas(2002).
That is, controlling conventional determinants of economic growth, countries
with faster changes in working age population ratio or with faster decline in
fertility rate also experienced higher per capita income growth. Although there
were some evidences consistent with the neoclassical theories which suggest
that countries with higher level of working age population ratio grows faster,
they were not very robust. Overall, the empirical evidence provided in this
paper suggests that population aging by itself is not likely to be a serious
threat to per capita income growth in the future. This will be particularly
true if demographic transition reflects the tendency to prefer quality to quantity
of children which arose with the process of industrialization, and if population
aging is just another name of such demographic transition. If we step back to
admit that population aging has an effect of slowing down per capita income
growth through channels postulated by neoclassical overlapping generations models,
the evidence of this paper suggests the possibility that there exist mechanisms
which work to offset this effect. Recently, it seems to be widely believed
that per capita income growth in Korea will slow down aggravating fiscal burden
as a result of population aging. Based on this recognition, various policy proposals
have been suggested. These include not only reforms in pension system and labor
market institutions but also promotion of childbirths and changes in immigration
policy. However, proposed policies on childbirths and immigration could be understood
as policies which view population aging itself as a source of the problem and
are aimed at slowing the aging process itself.This paper has indirect implications
on the answers to the question of whether aging itself matters or whether institutions
matter. The evidence from this study cast some doubt on the view that aging
process itself is a source of the problem. Thus, policies that are aimed directly
at retarding the process of population aging, such as promoting child births
or relaxing regulations on immigration, are not likely to be justified on the
grounds of population aging. Although the process of population aging itself
may not warrant policy intervention, we cannot exclude the possibility that
current institutions that are interrelated with age structure of population
will become inappropriate and create distortions with population aging. Thus,
policy response should be focused on reforming age-structure-dependent institutions
in pension system and labor and financial markets, so that those institutions
will not become obstacles to further economic growth.
Chapter IV. Impact on Public Finance
The rapid population aging in Korea is likely to pose a serious threat to
the sound fiscal management in the future. It will not only shrink the national
tax base as the size of working age population decreases, but it will also increase
social expenditures targeted to both income protection and medical care of the
elderly. In particular, social insurance expenditures such as public pension
schemes and long-term health care of the elderly will take a leading role in
budget expansion. Therefore, to prevent excessive fiscal burden resulting from
increasing number of aging population and to sustain fiscal soundness, precautionary
measures to protect national tax base and to contain social expenditures are
urgently needed. This chapter examined the impacts of population aging on both
fiscal revenues and fiscal expenditures. The first essay analyzed the relationship
between population aging and the national tax burden. The second essay examined
the effects of population aging on social insurance programs including public
pension schemes and health insurance program in Korea. Major findings and policy
implications from these studies are as follows. The first paper, entitled
“The Effects of Population Aging on the Tax Burden Ratio,” (by Chong Bum Ahn
) attempted to conduct an empirical study on the relationship between population
aging and the tax burden ratio using the data of 30 OECD countries during the
period of 1970-2001 based on the fixed effect model estimation method. In particular,
we investigated the detailed channel of how population aging affects tax burden
ratio by using the recursive equation model estimation.The findings from
the fixed effect model estimation show that the signs of the old age dependency
ratio and the square of the old age dependency ratio are negative and positive,
respectively, implying that the U-shaped form appears in the relationship between
the old age dependency ratio and tax burden ratio. The results of the recursive
equations model estimations indicate that the old age dependency ratio affects
tax burden ratio directly in the form of U-shape. It can be also observed that
the old age dependency ratio affects the tax burden ratio via GDP per capita
and the ratio of the government consumption expenditure to GDP.Based on
the results of the recursive equation model estimations, we also projected the
tax burden ratio of Korea during the period of 2002-2050. From this study, we
found that the tax burden ratio in Korea would increase continuously. As the
projection is based on the assumption that the balanced budget is maintained,
the actual tax burden ratio may be lower than the projected tax burden ratio
and there may be a serious budget deficit. Hence, to cope with the problems
associated with the high tax burden ratio or the serious budget deficit, there
should be an effort to sustain the balanced budget and to contain the government
expenditures within its affordable range. For this purpose, a medium-term fiscal
plan should be established, performance management system needs to be strengthened
and various social insurance plans must be reformed.
Given the experiences of the advanced Western countries where the rapid expansion
of social protection expenditures arising from aging population have led to
increase in public expenditures with eventual adverse impact on national economy
as a whole, the second paper, “The Effects of Population Aging on Social Expenditures,”
(by Yongha Kim ), has attempted to analyze the effects of social protection
spending on the public finance in Korea. The analysis has been carried out in
two different sectors of income protection and medical protection. We first
estimated the financial projections of both the income protection system and
the medical protection system in the future, and discussed policy measures for
addressing the problems arising from population aging. The analysis of this
study has been based on the outcome of a simulation model which has incorporated
various variables to reflect the factors affecting the aging population. The
results of the simulation confirmed that the aging population exerts great impacts
on national pension as well as on medical insurance. This study confirmed that
the national pension reserves will be exhausted by 2040 and the national pension
payout will amount to some 7 percent of GDP by 2050 if the current system will
remain unchanged. Besides, social expenditures to provide income protection
to poor elderly who are not covered by the current public pension plans will
add the significant pressure for budget increase in the future. As for the health
insurance program, the total medical expenses will amount to approximately 8
percent og GDP by 2050 and the expenditures of medical aid to the poor will
also increase rapidly. In sum, social expenditures for both old-age income protection
and medical protection is expected to increase to nearly 20 percent of GDP,
and thereby posing a great threat to fiscal soundness in the future. Hence,
it is crucial to undertake reforms of the various social insurance programs
to make them more financially sustainable and socially adequate. The structural
imbalance of the current public pension schemes needs to be adjusted and the
more comprehensive multi-pillar old-age income protection system should be established.
As for the heath insurance program, measures to improve its managerial efficiency
and to enhance cost-awareness of the providers and consumers of the medical
services should be developed.
Chapter V. Impact on Financial Market
Chapter V consists of three papers examining important implications of aging
on financial markets in Korea; relationship between pension system and private
savings, changing asset demand along with changing demographic structure, and
the role of pension funds in the development of capital market. The first
paper, "impacts of public pension on household saving in Korea," (by
Kyung-Mook Lim and Hyungpyo Moo) analyzes the relationship between public pension
schemes and household saving. There are two different public pension schemes
in Korea. One is the Public Occupational Pension Scheme(OPS) that covers public
employees, teachers and military forces. The other is the National Pension Scheme(NPS)
that covers general public in the private sector. We investigated whether these
public pension schemes affect household saving behavior. The empirical tests
showed that there is a significant crowding-out effect of pension schemes on
household saving. The estimated crowding-out effect of pension on household
saving is between 20~60%, which is consistent with the cases of developed countries.
Interestingly, the size of crowding-out effect of the OPS seems to be larger
than that of the NPS. It may reflect the difference in the perception of pension
wealth between participants of the OPS and the NPS, as the OPS was introduced
relatively much earlier (several decades ago) than the NPS (introduced only
in 1988). Hence the OPS affected its participants' saving behavior more significantly.
If this is the case, it is expected that as participants of the NPS get aware
of their expected pension wealth household saving could decrease further. Once
we accept the empirical results that public pension schemes would reduce household
saving, the size of national saving (household saving plus public saving) could
be affected, ceteris paribus, by the design of funding policy of public pension
system (funded vs. pay-as-you-go). If the current pre-funded base is maintained
in the future, public saving would increase through pension fund accumulation.
In this case national saving would not decrease as much as household saving
is reduced, since the increase in public saving would offset the decrease in
household saving. On the other hand, if pay-as-you-go base is adopted, national
saving would decrease since public saving cannot compensate for the decrease
in household saving. In this respect, funded pension system is preferred to
pay-as-you-go system in the sense that the latter will reduce national saving
and thus the level of welfare, unless there exists an excess capital accumulation
in the economy.The second paper, “Aging and asset demand in Korea” (by
Chang-Gyun Park) tries to measure the effect of aging on demand for various
categories of assets and predict the long-term trend in demand for assets based
on the estimates and official population projection for the next 50 years. It
is now a well-known proposition that changes in demographic structure convoluted
with life-cycle pattern of individual saving decision may result in significant
fluctuations in financial market. Aging is surely a major change in demographic
structure. The main findings of the analyses are that demands for both total
and financial assets are expected to increase continuously until 2030 and the
proportion of risky assets in total financial portfolio is expected to decrease
continuously again until 2030. Though our analyses produce a reasonable time
series patterns of demand for assets, interpretation should be done with some
caution. The panel data used in the analysis shows somewhat characteristic patterns
different from those found in other countries such as the United States. The
most striking feature is that the accumulation of financial assets remains at
a remarkably low level in all age groups. Another notable characteristic trait
of asset holding in Korea is that the proportion of stock holding individuals
is very low and shows the usual inverted U-shape except for a huge jump for
the very old (70 or older). If we were to attribute those abnormal patterns
of asset holding to backwardness of financial market, projection of future demand
for assets should be performed cautiously not to jump at a hurried conclusion
entirely based on historic data. The policy implications, therefore, should
be drawn based on characteristic feature of asset market in Korea. Low proportion
of financial assets in total assets means high proportion of real assets, especially
residential properties. While one can explain abnormally low accumulation of
financial assets by high housing price and lack of long-term mortgage system,
the estimated age profile of asset holdings does not seem to fit into typical
age profile found in other countries. Various policy measures should be taken
to help individuals transform into more balanced portfolios based on stability
and liquidity to assure adequate provisions for old-age consumption.The
third paper, "On the Relationship between pension funds and capital market
development,"(by Inseok Shin) examines theoretical and empirical evidences
for claim that pension funds play an important role in development of capital
market. However, we argue that the mere growth of pension funds itself does
not assure proportional increase in beneficial effects. One can easily find
a theoretical model to illustrate the situation that pension funds suffer from
principal-agent problem and many empirical researches, especially in the United
States indicate possible existence and significance of the problem. It is argued
that devising a sound mechanism to solve the principal-agent problem is necessary
to take advantage of beneficial functions of pension funds. Institutionalization
of a transparent and efficient governance structure in pension fund management
and establishment of market discipline based on competitive principle in asset
management industry are given as two examples. We also conduct an empirical
study to evaluate the role of competitive pressure in asset management industry.
The evidence does not provide a definite answer but seems to indicate lack of
competitive pressure in Korean asset management industry. The existence of negative
equity premium at least up to now is a solid empirical fact in Korean stock
market and we again confirm the anomaly. One can suspect a serious distortion
in investment behavior of pension funds due to negative equity premium. The
policy implications are obvious. There are two general necessary conditions
to expect beneficial role of pension funds in development of capital market;
good governance structure in pension fund management and well-functioning market
discipline in asset management industry. Peculiarity of capital market in Korea
calls for prior settlement of one problem. That is, holding risky assets should
be properly compensated in the form of positive equity premium. The mission
can be completed most effectively through improving infrastructure in capital
market to enhance efficiency.
Chapter VI. Impact on Labor Market
The analysis on the impact on the labor market in Chapter VI focuses on the
labor market behavior of the elderly. Presumably, with aging the size of the
elderly population will increase and that of the young will decrease. However,
the change in the composition of population by age groups does not necessarily
imply shortage of youth labor and increased labor supply of the elderly. On
the contrary, in European countries where aging has significantly progressed,
the youth unemployment rate is still high and the elderly retire earlier than
ever in the past. Obviously, labor market conditions are determined mainly by
other factors than the aging itself. Thus, in an aged society, job creation
is likely to remain as the most important policy objective, for which the known
best policy is enhancing the labor market flexibility. The reason that policy
for labor demand usually is not included in the study for labor market policy
for an aged society is that the policy is a premise, and not that it is not
important. On the other hand, the elderly labor market is usually strongly
influenced by institutional arrangement. For example, the early retirements
are usually supported in some way or another by pension or other social insurance.
The retirement decisions depend on mandatory retirement age or prohibition of
age discrimination. Since the institutions in the elderly labor market are policy
variables in that governments can change them, most policy studies address issues
in the elderly labor market, especially the transition from work to retirement
among the elderly. The first essay, “A Preliminary Analysis of the Elderly
Labor Market in Korea,” (by Kyungsoo Choi) presents long-term projection of
the Korean labor force by extending the results of Hahn, Choi, Kim, and Lim(2002).
The projection assumes rising female labor participation, and reduced labor
participation among the elderly in the future as the share of rural population
drops and the general educational level among them rises. Despite the falling
participation rate the share of the elderly in the labor force is predicted
to grow sharply with population aging as the elderly’s share in population
rises fast, unless early retirement trend become pronounced. In addition, the
educational level of the elderly is also predicted to upgrade rapidly in the
future, resulting increased share of wage/salary workers among the elderly.The
transition from work to retirement is investigated using the EAPS (Economically
Active Population Survey) data sets. The cross-section data provided only limited
information on the transition, since the retirement decisions are inherently
life cycle decisions for which analysis panel data are indispensable to control
for individual effects. To make up for the data deficiencies, he constructed
a synthetic cohort and performed cohort analysis along with cross-section data
analysis. As the labor participation rate among the elderly in Korea still remains
at a high level and does not show much variation across years, it is commonly
thought that the transition is a gradual one and the retirement age will remain
high in Korea. However, the results reveal that retirement decisions in Korea
are sensitive to economic conditions as the labor participation rates by ages
among the elderly show significant variation across years especially from 60
to 64 years old. Further, synthetic cohort analysis reveals that the transition
from work to retirement is much more abrupt among the wage/salary workers especially
among the regular workers. That is, they tend to move out of labor force once
they retire from their career jobs. Such results, if combined with the previous
projection that the share of educated and wage/salary workers among the elderly
will increase in the future, suggest that the influence of institutional arrangement
in the elderly labor market will grow in the future in Korea. Then, one could
not rule out the possibility of early retirement trend in the future elderly
labor market as the National Pension System matures, which we observe in today’s
elderly labor market in advanced countries.The second essay, “Changes in
the Labor-Force Participation of Older Males in Korea: Trend and Forecast”
(by Chulhee Lee ) estimates the labor force participation rate (LFPR) of older
males in Korea from 1955 through 2000, and analyzes the effects of a number
of determining factors of labor-force participation decisions at older ages.
The LFPR of older males 60 and older substantially increased from the mid-1960s
to the late-1990s. This pattern is sharply distinct from the historical experiences
of other OECD countries that witnessed a rapid decline in the LFPR of older
males over the last century. The rise in the LFPR of older males in Korea between
1965 and 1995 is largely explained by the dramatic increase in the labor-market
activity among the rural elderly population. The results of regression analyses
suggest that the acceleration of population aging in rural areas due to the
selective out-migration of younger persons was the major cause of the sharp
increase in the LFPR of older males. According to the regression results and
the anticipated changes in the determining factors of labor-market activity
of the elderly, it is likely that the LFPR of older males in Korea will greatly
decline in the future, making the potential adverse impacts of the population
aging even worse.
