## 1. Aging Indicators ## Source details **Canonical URL:** [1. Aging Indicators](https://www.imf.org/-/media/files/publications/cr/2025/english/1korea2025004-source-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2025/english/1korea2025004-source-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2025/english/1korea2025004-source-pdf.pdf.json) --- ### Introduction: demographic and labor supply context - Korea is one of the fastest ageing countries in Asia and the world; the share of the elderly population (65 years and older) rose from less than 6 percent in the mid-1990s to about 20 percent in 2024. - Korea is expected to become a “super-aged society” by 2026. - Korea’s old-age dependency ratio is estimated at about at 27.5 in 2024. - Life expectancy is 84 years. - Fertility rate was 0.72 in 2023. - Working-age population (WAP) peaked in 2018 and has been contracting by 0.5 percent per year on average between 2019 and 2024. - Korea is projected to lose 30 percent of its WAP by 2050. - Labor force participation rates are close to 65 percent. - Female labor force participation (FLFP) increased from 43 percent to 56 percent in 2024; male FLFP is close to 73 percent. ### Healthy ageing and potential macro effects - Evidence points to “healthy aging” in Korea with steady improvements in health indicators across cohorts. - Example: on average, the grip strength of a 70-year-old Korean in 2022 was approximately equivalent to that of a 60-year-old in 2006. - Prior work referenced: - Healthy ageing could reduce the negative impact of ageing on GDP by up to 5 percentage points over a 30-year period in OECD countries. - IMF (2025a) finds healthy ageing could boost global output growth by about 0.6 percentage point over the next 25 years, offsetting nearly three-fourths of the demographic drag during that period. - This paper investigates whether improvements in health among elderly workers have increased their labor market participation, using a two-stage least squares (2SLS) instrumental variable approach where development of certain chronic diseases proxies exogenous health variations. ### Stylized facts on elderly labor market participation and employment - Labor force participation of elderly workers increased from 62 percent to 72 percent between 1980 and 2024. - The share of elderly workers in the labor force nearly doubled since 2000, reaching 20 percent. - Employment of elderly workers accounts for 20 percent of total employment. - Employment rates were about 64 percent in 2022, compared to an OECD average of 52 percent. - Employment rates by age cohort (micro survey): - Highest for individuals in their 50s. - Decline to around 45 percent for those in their 60s. - Decline to around 20 percent for those in their 70s. - Many workers retire before the statutory retirement age of 60; many retire before age 55. - Legal pension eligibility age is 63; workers are generally not eligible for pension until age 63 unless enrolled in voluntary contribution systems. - Work income for the elderly accounts for less than 50 percent of their total earnings in Korea (about half the OECD average). - Public transfers (including pensions) to the elderly in Korea account for about 33 percent of their income, compared to 66 percent in other OECD countries. - Public spending on social protection in Korea is 15 percent. - Household income with a head over 60 years tends to be 40 percent lower than those headed by younger people. - Korea has one of the highest shares of non-regular workers among OECD countries; elderly workers are more likely to be employed in temporary work or be self-employed across education profiles. - Only about 25 percent of elderly workers are likely to remain in the same job for over 5 years, compared to the OECD average of about 50 percent. - Korea’s average annual hours worked per worker remains among the highest among OECD economies in 2024; long working hours may discourage elderly participation or push them to low-quality jobs. ### Empirical approach and data - Two-step empirical strategy: - (i) OLS regressions to study correlations between health and labor market indicators. - (ii) Two-stage least squares (2SLS) regressions to address endogeneity, instrumenting health by incidence of certain chronic diseases assumed to be exogenous after controlling for socio-economic characteristics and health behaviors. - Outcome variables include labor market indicators such as labor force participation and retirement status. - Control vector includes age, gender, education, log household wealth, and health-related behaviors (exercise, smoking, drinking, body-mass index). Time trend or time fixed effects included as robustness. - Health indicators: - Measured grip strength (kg). - Self-reported overall health status, ease of performing activities of daily living (ADLs), and instrumental activities of daily living (IADLs), summarized into a principal component (PC). - Health indicators are standardized to have zero mean and unit standard deviation; higher values indicate better health. - Chronic diseases used as instruments include: high blood pressure, arthritis, heart disease, diabetes, psychological disorders, cataracts, cancer, lung disease, stroke, and urinary incontinence. - Data source: Korean Longitudinal Study of Aging and Retirement (KLoSA). - Sample: around 60,000 observations for individuals aged 50 and above from eight survey waves during 2006-2020. ### Empirical results: OLS and 2SLS - OLS estimates: - Better physical health—both measured and self-reported—is associated with a higher likelihood of labor force participation and lower probability of retirement among elderly workers in Korea. - OLS estimates are correlations and may be biased by endogeneity between health and labor market outcomes. - 2SLS approach: - Individuals’ health is instrumented by incidence of chronic diseases. - First-stage regressions confirm that chronic disease incidence is a strong instrument for physical health across all measures. - Using 2SLS, the analysis aims to identify causal effects of health improvements on labor market participation among elderly individuals. - The analysis explores heterogeneity by age group, gender, education, and income levels. ### IV results: magnitude and robustness - IV results suggest that healthy aging has increased the labor supply of elderly individuals in Korea by around 1.9 percentage points per year during 2006-20. - Second stage (2SLS) regressions show exogenous improvements in health significantly: - Increase labor force participation and reduce retirement rates. - Improvements in overall health could increase labor force participation by about 19 percentage points over a 10-year period and reduce retirement by broadly the same magnitude, with larger effects found for grip strength. - Estimated effects from the IV approach are substantially larger than those from OLS regressions, highlighting the importance of addressing endogeneity. - Results are robust to controlling for year and individual fixed effects. ### Key statistics from regression tables (preserve source precision) - Table 1 — OLS coefficients (Labor force participation / Retired): - Grip strength: 0.056*** / -0.042*** - Self-reported PC: 0.080*** / -0.068*** - Overall health status: 0.072*** / -0.065*** - ADLs IADLs: 0.059*** / -0.048*** - (0.073*** / -0.062*** appears as additional column) - Table 1 — IV: 2nd Stage (Labor force participation / Retired): - Grip strength: 1.013*** / -0.938*** - Self-reported PC: 0.287*** / -0.266*** - Overall health status: 0.196*** / -0.181*** - ADLs IADLs: 0.493*** / -0.456*** - (0.559*** / -0.518*** appears as additional column) - Table 1 — IV: 1st Stage (Chronic disease coefficients): - Grip strength: -0.326*** - Self-reported PC: -1.334*** - Overall health status: -2.021*** - ADLs IADLs: -0.751*** - (additional column: -0.666***) - Weak IV F-statistic: 4320214964856 - Robustness (Table 2) — 2SLS Labor force participation: - Baseline: 1.013*** (Grip strength), 0.287*** (Self-reported PC), 0.196*** (Overall health status), 0.493*** (ADLs IADLs), 0.559*** (additional) - Year FE: 1.054***, 0.291***, 0.199***, 0.499***, 0.566*** - Individual FE: 0.687**, 0.165***, 0.164***, 0.232***, 0.240*** ### Heterogeneity of effects - Age groups (2SLS coefficients, grip strength and other measures): - 50-59: 1.172***, 0.391***, 0.194***, 1.082***, 1.110*** - 60-69: 0.892***, 0.348***, 0.210***, 0.675***, 0.751*** - 70-79: 0.891***, 0.221***, 0.205***, 0.307***, 0.346*** - 80-89: 0.517***, 0.115***, 0.183***, 0.125***, 0.160*** - Gender: - Female: 0.584***, 0.248***, 0.155***, 0.449***, 0.529*** - Male: 1.301***, 0.348***, 0.263***, 0.561***, 0.623*** - Education: - < Upper secondary: 0.926***, 0.301***, 0.218***, 0.503***, 0.540*** - Upper secondary: 1.580***, 0.340***, 0.215***, 0.623***, 0.737*** - Tertiary: 0.210, 0.107, 0.072, 0.164, 0.254 - Wealth: - Quintile 1 (lowest): 2.190**, 0.367***, 0.295***, 0.602***, 0.610*** - Quintile 5 (highest): 0.800**, 0.219***, 0.122***, 0.437**, 0.600** - Additional heterogeneity findings: - Improvement in overall health of workers in their fifties and sixties increases probability to join the labor force by about 15-20 percentage points over a decade. - Effect is nearly twice as strong for men compared to women. - Stronger likelihood of healthier elderly with lower education joining the labor market relative to those with tertiary education. - Probability of joining the labor market because of better health is higher for poorer quintiles. ### Interpretation: labor demand vs. supply - Evidence is consistent with improved health boosting labor supply. - Results support the notion that Korea’s elderly employment constraints stem mainly from labor demand rather than labor supply. - Health is found to have no significant effect on unemployment probability (conditional on participating in the labor force). ### Policy recommendations — short term - Promote employment of elderly workers to boost labor supply and mitigate adverse effects of ageing. - Expedite structural reforms to increase employment of older workers and remove barriers impeding their attractiveness as employees. - Design and implement work hours reform to balance needs of workers and enterprises, ensure sufficient dialogue with stakeholders, and clearly communicate changes. - Raise the statutory retirement age: - Current mandatory retirement age: 60 (set after 2016 reform). - Authorities' plan to raise retirement age to 65. - Pension eligibility age: set at 63 and expected to increase to 65. - OECD (2024) estimate: increasing pensionable age to 68 years by 2035 could increase total employment by 14 percent and in GDP by 12 percent by 2070. - Abolish gap between mandatory contribution age (60) and legal pension eligibility age (set at 63) to enhance income of elderly workers and reduce acceptance of irregular or low-quality jobs. - Introduce more flexible work arrangements and age-friendly working conditions (remote work, part-time) to delay retirement and allow combination with training or caregiving. - Ensure working conditions minimize job strain, occupational diseases and work accidents for elderly workers. - Reskilling and upskilling: - Provide access to vocational training designed to deliver needed skills. - Facilitate job matching, employment counselling and guidance services. - Encourage lifelong learning to improve employment prospects. - Improve digital skills of elderly workers: - Address disadvantages in digital skills relative to younger workers. - Recognize Korea's high exposure to artificial intelligence (AI) and need for advanced digital skills (IT, information-processing, problem-solving). - Note risk of displacement in low-technology sectors and evidence of difficulties in adapting to job reallocation driven by AI. ### Policy recommendations — long term - Reform employment protection legislation (EPL) to address labor market duality and impede hiring of elderly workers: - Employment protection for regular and permanent workers in Korea is stronger than OECD average with very restrictive regulations on individual dismissals. - Restrictive EPL identified as key driver for labor market duality. - Major EPL reforms for regular workers during economic expansions estimated to increase output and employment by about 5 percent on average over the medium term. - Consider more flexible employment protection and expand regulation and social protection for non-regular and self-employed workers, including expanding unemployment insurance. - Reform seniority-based wage system: - Strengthen link between productivity and wages to reduce large labor costs on employers. - Aim to discourage early retirement and allow elderly workers to remain in regular jobs longer. - Complementary longer-term pension reforms are essential for fiscal sustainability of the pension fund. *Source: IMF staff report excerpt (Republic of Korea).* ### 1. Aging Indicators _____________________________________________________________________ 4 ### 1. Aging Indicators ### Introduction: demographic and labor supply context - Korea is one of the fastest ageing countries in Asia and the world; the share of the elderly population (65 years and older) rose from less than 6 percent in the mid-1990s to about 20 percent in 2024. - Korea is expected to become a “super-aged society” by 2026. - Korea’s old-age dependency ratio is estimated at about at 27.5 in 2024. - Life expectancy is 84 years. - Fertility rate was 0.72 in 2023. - Working-age population (WAP) peaked in 2018 and has been contracting by 0.5 percent per year on average between 2019 and 2024. - Korea is projected to lose 30 percent of its WAP by 2050. - Labor force participation rates are close to 65 percent. - Female labor force participation (FLFP) increased from 43 percent to 56 percent in 2024; male FLFP is close to 73 percent. ### Healthy ageing and potential macro effects - Evidence points to “healthy aging” in Korea with steady improvements in health indicators across cohorts. - Examples cited: on average, the grip strength of a 70-year-old Korean in 2022 was approximately equivalent to that of a 60-year-old in 2006. - Prior work referenced: - Healthy ageing could reduce the negative impact of ageing on GDP by up to 5 percentage points over a 30-year period in OECD countries. - IMF (2025a) finds healthy ageing could boost global output growth by about 0.6 percentage point over the next 25 years, offsetting nearly three-fourths of the demographic drag during that period. - This paper investigates whether improvements in health among elderly workers have increased their labor market participation, using a two-stage least squares (2SLS) instrumental variable approach where development of certain chronic diseases proxies exogenous health variations. ### Stylized facts on elderly labor market participation and employment - Labor force participation of elderly workers increased from 62 percent to 72 percent between 1980 and 2024. - The share of elderly workers in the labor force nearly doubled since 2000, reaching 20 percent. - Employment of elderly workers accounts for 20 percent of total employment. - Employment rates were about 64 percent in 2022, compared to an OECD average of 52 percent. - Employment rates by age cohort (micro survey): - Highest for individuals in their 50s. - Decline to around 45 percent for those in their 60s. - Decline to around 20 percent for those in their 70s. - Many workers retire before the statutory retirement age of 60; many retire before age 55. - Legal pension eligibility age is 63; workers are generally not eligible for pension until age 63 unless enrolled in voluntary contribution systems. - Work income for the elderly accounts for less than 50 percent of their total earnings in Korea (about half the OECD average). - Public transfers (including pensions) to the elderly in Korea account for about 33 percent of their income, compared to 66 percent in other OECD countries. - Public spending on social protection in Korea is 15 percent. - Household income with a head over 60 years tends to be 40 percent lower than those headed by younger people. - Korea has one of the highest shares of non-regular workers among OECD countries; elderly workers are more likely to be employed in temporary work or be self-employed across education profiles. - Only about 25 percent of elderly workers are likely to remain in the same job for over 5 years, compared to the OECD average of about 50 percent. - Korea’s average annual hours worked per worker remains among the highest among OECD economies in 2024; long working hours may discourage elderly participation or push them to low-quality jobs. ### Empirical approach and data - Two-step empirical strategy: - (i) OLS regressions to study correlations between health and labor market indicators. - (ii) Two-stage least squares (2SLS) regressions to address endogeneity, instrumenting health by incidence of certain chronic diseases assumed to be exogenous after controlling for socio-economic characteristics and health behaviors. - Outcome variables include labor market indicators such as labor force participation and retirement status. - Control vector includes age, gender, education, log household wealth, and health-related behaviors (exercise, smoking, drinking, body-mass index). Time trend or time fixed effects included as robustness. - Health indicators: - Measured grip strength (kg). - Self-reported overall health status, ease of performing activities of daily living (ADLs), and instrumental activities of daily living (IADLs), summarized into a principal component (PC). - Health indicators are standardized to have zero mean and unit standard deviation; higher values indicate better health. - Chronic diseases used as instruments include: high blood pressure, arthritis, heart disease, diabetes, psychological disorders, cataracts, cancer, lung disease, stroke, and urinary incontinence. - Data source: Korean Longitudinal Study of Aging and Retirement (KLoSA). - Sample: around 60,000 observations for individuals aged 50 and above from eight survey waves during 2006-2020. ### Empirical results (OLS and 2SLS) - OLS estimates: - Better physical health—both measured and self-reported—is associated with a higher likelihood of labor force participation and lower probability of retirement among elderly workers in Korea. - OLS estimates are correlations and may be biased by endogeneity between health and labor market outcomes. - 2SLS approach: - Individuals’ health is instrumented by incidence of chronic diseases. - First-stage regressions confirm that chronic disease incidence is a strong instrument for physical health across all measures. - Using 2SLS, the analysis aims to identify causal effects of health improvements on labor market participation among elderly individuals. - The analysis explores heterogeneity by age group, gender, education, and income levels. *Source: IMF staff summary of "Healthy Aging and Labor Market Participation in Korea" (KLoSA-based analysis).* ### 16. IV results suggest that healthy aging has increased the labor supply of elderly ### 1korea2025004-source-pdf - 16. IV results suggest that healthy aging has increased the labor supply of elderly ### Key IV findings on health and elderly labor supply - IV results suggest that healthy aging has increased the labor supply of elderly individuals in Korea by around 1.9 percentage points per year during 2006-20. - Second stage (2SLS) regressions show exogenous improvements in health significantly: - Increase labor force participation and reduce retirement rates. - Improvements in overall health could increase labor force participation by about 19 percentage points over a 10-year period and reduce retirement by broadly the same magnitude, with larger effects found for grip strength. - Estimated effects from the IV approach are substantially larger than those from OLS regressions, highlighting the importance of addressing endogeneity. - Results are robust to controlling for year and individual fixed effects. ### Key statistics from regression tables (preserve source precision) - Table 1 — OLS coefficients (Labor force participation / Retired): - Grip strength: 0.056*** / -0.042*** - Self-reported PC: 0.080*** / -0.068*** - Overall health status: 0.072*** / -0.065*** - ADLs IADLs: 0.059*** / -0.048*** - (0.073*** / -0.062*** appears as additional column) - Table 1 — IV: 2nd Stage (Labor force participation / Retired): - Grip strength: 1.013*** / -0.938*** - Self-reported PC: 0.287*** / -0.266*** - Overall health status: 0.196*** / -0.181*** - ADLs IADLs: 0.493*** / -0.456*** - (0.559*** / -0.518*** appears as additional column) - Table 1 — IV: 1st Stage (Chronic disease coefficients): - Grip strength: -0.326*** - Self-reported PC: -1.334*** - Overall health status: -2.021*** - ADLs IADLs: -0.751*** - (additional column: -0.666***) - Weak IV F-statistic: 4320214964856 - Robustness (Table 2) — 2SLS Labor force participation: - Baseline: 1.013*** (Grip strength), 0.287*** (Self-reported PC), 0.196*** (Overall health status), 0.493*** (ADLs IADLs), 0.559*** (additional) - Year FE: 1.054***, 0.291***, 0.199***, 0.499***, 0.566*** - Individual FE: 0.687**, 0.165***, 0.164***, 0.232***, 0.240*** ### Heterogeneity of effects - Health effects on labor market participation vary by socio-economic characteristics: - Age groups: - 50-59: 1.172*** (Grip strength), 0.391***, 0.194***, 1.082***, 1.110*** - 60-69: 0.892***, 0.348***, 0.210***, 0.675***, 0.751*** - 70-79: 0.891***, 0.221***, 0.205***, 0.307***, 0.346*** - 80-89: 0.517***, 0.115***, 0.183***, 0.125***, 0.160*** - Gender: - Female: 0.584***, 0.248***, 0.155***, 0.449***, 0.529*** - Male: 1.301***, 0.348***, 0.263***, 0.561***, 0.623*** - Education: - < Upper secondary: 0.926***, 0.301***, 0.218***, 0.503***, 0.540*** - Upper secondary: 1.580***, 0.340***, 0.215***, 0.623***, 0.737*** - Tertiary: 0.210, 0.107, 0.072, 0.164, 0.254 - Wealth: - Quintile 1 (lowest): 2.190**, 0.367***, 0.295***, 0.602***, 0.610*** - Quintile 5 (highest): 0.800**, 0.219***, 0.122***, 0.437**, 0.600** - Additional heterogeneity findings: - Improvement in overall health of workers in their fifties and sixties increases probability to join the labor force by about 15-20 percentage points over a decade. - Effect is nearly twice as strong for men compared to women. - Stronger likelihood of healthier elderly with lower education joining the labor market relative to those with tertiary education. - Probability of joining the labor market because of better health is higher for poorer quintiles. ### Interpretation and labor demand vs. supply - Evidence is consistent with improved health boosting labor supply. - Results support the notion that Korea’s elderly employment constraints stem mainly from labor demand rather than labor supply. - Health is found to have no significant effect on unemployment probability (conditional on participating in the labor force). ### Policy recommendations — short term - Promote employment of elderly workers to boost labor supply and mitigate adverse effects of ageing. - Expedite structural reforms to increase employment of older workers and remove barriers impeding their attractiveness as employees. - Design and implement work hours reform to balance needs of workers and enterprises, ensure sufficient dialogue with stakeholders, and clearly communicate changes. - Raise the statutory retirement age: - Current mandatory retirement age: 60 (set after 2016 reform). - Authorities' plan to raise retirement age to 65. - Pension eligibility age: set at 63 and expected to increase to 65. - OECD (2024) estimate: increasing pensionable age to 68 years by 2035 could increase total employment by 14 percent and in GDP by 12 percent by 2070. - Abolish gap between mandatory contribution age (60) and legal pension eligibility age (set at 63) to enhance income of elderly workers and reduce acceptance of irregular or low-quality jobs. - Introduce more flexible work arrangements and age-friendly working conditions (remote work, part-time) to delay retirement and allow combination with training or caregiving. - Ensure working conditions minimize job strain, occupational diseases and work accidents for elderly workers. - Reskilling and upskilling: - Provide access to vocational training designed to deliver needed skills. - Facilitate job matching, employment counselling and guidance services. - Encourage lifelong learning to improve employment prospects. - Improve digital skills of elderly workers: - Address disadvantages in digital skills relative to younger workers. - Recognize Korea's high exposure to artificial intelligence (AI) and need for advanced digital skills (IT, information-processing, problem-solving). - Note risk of displacement in low-technology sectors and evidence of difficulties in adapting to job reallocation driven by AI. ### Policy recommendations — long term - Reform employment protection legislation (EPL) to address labor market duality and impede hiring of elderly workers: - Employment protection for regular and permanent workers in Korea is stronger than OECD average with very restrictive regulations on individual dismissals. - Restrictive EPL identified as key driver for labor market duality. - Major EPL reforms for regular workers during economic expansions estimated to increase output and employment by about 5 percent on average over the medium term. - Consider more flexible employment protection and expand regulation and social protection for non-regular and self-employed workers, including expanding unemployment insurance. - Reform seniority-based wage system: - Strengthen link between productivity and wages to reduce large labor costs on employers. - Aim to discourage early retirement and allow elderly workers to remain in regular jobs longer. - Complementary longer-term pension reforms are essential for fiscal sustainability of the pension fund. *Source: IMF staff report excerpt (Republic of Korea).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1korea2025004-source-pdf.pdf_