Abstract
Many middle-income countries have been witnessing rapid population aging, increasing pressures on their relatively fragile public pensions. Older workers may want to delay retirement to finance their prolonged lives, but job markets are not favorable for them. A hike in pension benefits might increase individual financial security, but weaken pension stability. Using panel data for older workers in Korea – a typical fast-aging middle-income country with a high rate of elderly poverty – this study finds that the forward-looking incentive measures associated with the public pension have a statistically significant effect on retirement probability. Older wage workers are more responsive to utility gains from continued work due to additional earnings and increased pension benefits than to financial gains from greater pension wealth. The significant effect of transfers from children to parents at retirement is particularly noteworthy, suggesting low fertility rates have made more difficult the tasks of alleviating elderly poverty and maintaining pension stability.
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