Why Is Old‐Age Poverty Still High Despite Welfare Expansion? Evidence From South Korea

Abstract

ABSTRACT Despite substantial increases in welfare expenditure since the 2000s, Korea continues to exhibit the highest relative old‐age poverty rate among advanced economies, while absolute poverty remains a significant concern. This study applies both relative and absolute poverty thresholds and employs fixed‐effects ordered logistic regression using panel data to examine trends and determinants of old‐age poverty. The results show that the absolute poverty rate declined markedly from 38.2% in 2003 to 14.5% in 2022, whereas the relative poverty rate remained largely unchanged, falling only from 48.6% to 44.4%. Poverty rates have shown little improvement since 2015, aside from a temporary decline during the COVID‐19 pandemic. Public pensions and means‐tested benefits are strongly associated with reductions in absolute poverty. However, given the limited coverage of the social security system, sufficient earned income remains essential for escaping relative poverty. These findings suggest a two‐step policy approach: expanding social security to reduce absolute poverty, while strengthening work incentives to address relative poverty. Overall, this study provides policy‐relevant insights for countries facing similar challenges related to population ageing and welfare development.