The Impact of Basic Pension on Consumption Expenditure of Elderly Households

Abstract

It is obvious that Korean elderly are currently facing poor welfare conditions. The poverty rate of the elderly is on the rise at the figures around fifty percent. With regard to consumption, another indicator for welfare, the propensity to consume in elderly households is also on the downward path with large gap from the average. Unfortunately, the suicide rate of elderly people in Korea is the highest among OECD members with the figure of 56 per 100,000. The survey result of subjective satisfaction is in consistency with the objective indicators. Under the recognition about the seriousness of the elderly-related problems, the Korean government has been putting a great deal of policy efforts to stabilize the livelihood and enhance the welfare for old generation in Korea. As part of those efforts, the basic senior pension was introduced in 2008. In 2014, the basic pension replaced and expanded the preexisting basic senior pension by doubling the amount of monthly pension.

Provided the basic pension requires huge amount of budget expenditure, it is imperative to verify that the pension system is working appropriately for achieving its policy goals. Among various determinant factors of welfare status, this study put focus on consumption and seeks to find the impact of basic senior pension and basic pension on consumption expenditure in elderly households. The purpose of this study is firstly, to check whether thebasic senior pension and the basic pension achieve to satisfy the desire for consumption of the elderly by increasing the consumption expenditure, secondly, to find out if the newly introduced basic pension has additional influence on consumption compared with the previous basic senior pension, and last but not least to search whether households characteristics, especially, the income level generates difference in the degree of impact of basic pension on consumption.

The objective of this study is only limited to elderly households, in other words, the households that include at least one elder person aged above 65 in Korea. The scope of time in this study is from 2009 to 2015 excluding 2014. Regarding the research data, this study uses the empirical data from Korea Welfare Panel Study, which contains a lot of information about Korean households ranging from general conditions such as a number of a family and living areas to economic activities including income or consumption expenditure. With respect to research method, this study uses multiple linear regression analysis to find the effect of pension on consumption.

This study tests three hypotheses. The first hypothesis is that provision of basic senior pension from 2009 to 2013 and provision of basic pension in 2015 to elderly households will affect positively to the consumption expenditure of the elderly families. The second hypothesis is that expansion of the new basic pension will additionally increase elderly households consumption expenditure. The third hypothesis is the impact of basic pension on consumption is greater in lower-income households than in higher-income households.

As for the first hypothesis, the dependent variable is the annual amount of expenditure for consumption in elderly households. The independent variable is the annual amount of basic senior pension or basic pension in elderly households. Regarding the second hypothesis, the dependent variable is the annual amount of expenditure for consumption in elderly households. The independent is an institution variable which gives 1 point to households that receives basic pension in 2015 and gives 0 point to the rest. With respect to the third hypothesis, the dependent variable is the annual amount of expenditure for consumption in pension recipient households. The independent variable is the annual amount of basic pension. Income level is used as a moderator. Throughout all the hypotheses, varied control variables such as income excluding pension, the size of asset, the size of debt, housing occupational type, living area, a number of unhealthy elderly, a number of minors, a working status of a householder, and year are used.

The test result of the multiple linear regression analysis for the first hypothesis is that both the basic senior pension and the basic pension affect consumption of elderly households positively. The test result for the second hypothesis indicates the introduction of the basic pension does not generate additional consumption increase effect. Lastly, the test result for the third hypothesis represents that the degree of impact of the basic pension on consumption differs by the income level of households. That is, the lowerincome household category shows higher impact of pension on consumption than the higher-income category.

Several policy implications can be inferred from the test results. Firstly, both basic senior pension and basic pension make contributions to enhancing the economic benefit of recipient families by increasing the consumption. Moreover, considering the elderly pension is given to old generation who are living with relatively low-income, this public assistance program might be evaluated to fulfill its policy goals successfully. However, the test result for the second hypothesis indicates, the recently introduced basic pension does not show additional effect of increasing consumption. This study suggests that rather than depending only on large amount of fiscal investments to provide grants directly to old people, the government should focus on boosting the industries for the elderly such as medical care, food, finance, and housing. In addition, supplying more decent jobs with time flexibility can be another policy options for boosting consumption of the elderly. From the test result for the third hypothesis, this study recommends the government to redesign the pension system by making greater differentiation of the amount of pension depending on income level. It might help increase consumption of households while alleviating the income disparities among the elderly.