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Labour Supply Incentives of Social Security Programs: Some Australian Lessons for the Korean Case

Michael Keane

Abstract: The Retirement income system in South Korea is a patchwork of different programs, none of which is particularly effective at reducing poverty among senior citizens. Program benefits are very poorly targeted, meaning a very large fraction of the elderly receive modest benefits that are generally inadequate to lift a houshold out of poverty. The consequence is that South Korea has the highest elderly poverty rate in the OECD. I will argue that a better targeted system - with more generous benefits aimed at the fewer recipients - is likely to be welfare enhancing.

However, it seems clear that elderly poverty in Korea cannot be addressed merely by reforming the retirement income system. To address the root causes of the problem, structural reforms are needed to break down Korea's dual labor market system. Under that system, a large share of workers are in informal jobs where they do not make or receive mandated retirement contributions.

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