The Effect of Income on Subjective Well-Being in Later Life: A Case Study of a Government Pension in South Korea

Abstract

Objectives. Despite keen interest among scholars and policy makers, little is known about whether income affects subjective well-being (SWB) in later life, a notoriously difficult question to answer, given the empirical challenge of isolating the effect of income from correlated influences and the possibility of reverse causality. This paper examines the effects of the 2008 introduction of the Basic Old-Age Pension, a noncontributory old-age pension in Korea, on older adults’ life satisfaction. Methods. This research analyses the 2005, 2007, 2009, and 2011 waves of the Korean Retirement and Income Study and utilizes a difference-in-difference quasi-experimental design. Results. Both the anticipation of the pension in 2007 and its actual provision in 2009 increased older adults’ life satisfaction. However, evidence of the effect in 2011 was much weaker. Discussion. The additional income from the pension had a positive impact on life satisfaction in later life, suggesting that countries pursuing rapid industrialization should pay careful attention to how the benefits from growth are distributed across generations. However, the effect of a government pension might be short-lived, making it less attractive to governments whose goal is to raise long-term SWB.