The effect of a change to the income support policy for the elderly on labor supply in South Korea

Abstract

In July 2014, the South Korean government replaced the Basic Elderly Pension, an income support program for the elderly, with a new program called the Basic Pension. This change doubled the maximum benefit to approximately $200 per month. Using a panel data set, this paper estimates the causal effect of this change on the elderly’s labor force participation, hours of work, and the cash benefit received from the program. To identify the counterfactual outcomes, I take two approaches: a potential outcome analysis and a structural model analysis. I find that the change in the program did not affect labor supply on the intensive or extensive margins significantly. However, if the benefit were increased to about $1000, the estimated structural model implies a significant reduction in labor supply on both the intensive and extensive margins.