On the Socio-Economic Effects of the Retirement Age Extension

Abstract

The extension of retirement age is a hot issue of debate in South Korea. The unprecedentedly rapid aging due to the low fertility and longevity made the South Korea to show the highest level of old-age poverty among OECD countries. The rapid ageing brings the shortage of labor supply and the old-age poverty. The shortage of labor supply will eventually bring a slowdown of growth potentials of the economy. The alternative for the shortage of labor is the extension/delay of retirement. We analyze the impact of raising the retirement age on the employment, industry output, and economic growth. We used CGE model to analyze the retirement extension in South Korea. The overall effects can be summarized as follows: (1) the delay of retirement causes the increase in labor employed by –0.007% ~ 0.248%, and the real wage changes by –0.190 ~ –0.093. (2) Employment by industry varies according to the labor skills required in that sector. In general, the skill-intensive sector has higher employment growth. (3) The delayed retirement in the skill-biased sector cause real GDP to grow more (e.g., professional services, etc.).