It is a key policy issue for the Korean government to reduce the high old-age poverty rate, which is now so severe that more than four out of ten senior citizens face poverty.
This study aims to develop effective poverty alleviation measures based on a detailed analysis of the causes of the high elderly poverty rate despite a diverse range of policies implemented to reinforce old-age income security.
For this purpose, we empirically analysed the effects of the government’s policies based on a Shapley decomposition over the last ten years. Public pension schemes and the basic old-age pension, which directly transfer income to the elderly, have positive effects on the reduction of the elderly poverty rate. On the other hand, population aging contributed to the rise of the elderly poverty rate for all periods. The negative effects of population aging means that reducing the elderly poverty rate in a short time is highly unlikely. The relative poverty rate formula currently used as a policy indicator does not control the effects of an increase in the elderly population, and thus the indicator may send a distorted policy signal. In this re-gard, it is important to use various supplementary indicators in addition to the relative poverty rate in policy review.
According to the empirical analysis of the effects of policies on elderly poverty, public pensions and the basic old-age pension can play the biggest role in resolving poverty. However, the national pension needs to focus on preventing poverty in old age. Considering the strong constraints on securing the appropriateness of old-age income security through the replacement rate of national pension income, it may be more realistic to strengthen the role of the basic pension.
In addition, labor incomes were also found to contribute significantly to the elimination of the elderly poverty. Thus, the senior employment program may be an alternative, although it is not a direct income transfer system for the elderly. However, it would be appropriate to set the senior employment program and the EITC as a complementary role to the old-age income security system centered on public pensions.
On the other hand, it was confirmed that the basic living security plan, which is a representative public assistance in Korea, may need some improvement in terms of poverty alleviation function.