The 6th Doshisha - Chung-Ang University Joint Seminar on East Asian Social Welfare

Changes and Relationships of Public and Private Transfers
to the elderly in Korea : An Empirical Study

Joo, Soo-Jeong
Department of Social Welfare, Social Policy
The Graduate School
Chung-Ang University
2016. 11. 190

INDEX.
Chapter 1. Introduction
1. Private transfers to the elderly
2. Public transfers to the elderly
Chapter 2. Theoretical Framework
Chapter 3. Research Design
1. Research Questions
2. Data and Measure
3. Research Model
4. Analysis Procedures
5. Method
6. Variables
Chapter 4. Results
Chapter 5. Conclusion11Introduction

environment

Institution

phenomena•

Demographic change: Low fertility rate and increase of aging population.

•Family structure change: Increase of nuclear families and one-person households. The ratesof co-residence with their ascendants: 75.3% in 1990 → 28.4% in 2014•

As a result, the role of the family for the old-age income maintenance has changed.

•The old-age income security is maturing.

•Payment started in 2000 from National Basic Social Security, and the National Pension Systemfrom 2008.

•In 2008, Basic Old-Aged Pension has been introduced.

•In July, 2014 Basic Old-Aged Pension has been reformed into Basic Pension.

•The role of the state for the old-age income maintenance is increasing.

•It can be inferred that public transfers to the elderly are increasing.

•How about Private transfers to the elderly?
Private transfers = Inter-household transfer + Intra-household transfers•

Did public transfers crowd out private transfers to the elderly in Korea?

21Introduction

crowding-out effect?

Previous studies about crowding-out effectPrivatePublic• No clear evidence. Findings are inconsistent.
• Ignored intra-household transfers.
• Performed the cross-sectional analysis

Privatewithout employing a panel data.

Public• Failed to suggest specific politicalalternatives.
Kimura**2010년

Kase *• Used to estimate effectiveness of thepublic redistribution programs.
3

1

Introduction: Private transfers to the elderly

Intra-household
transfers•→

Elderly
household

Elderly
householdmember

Adult-children

householdInter-household transfers
transfers between individuals living indifferent households.

•

Adult-children
Household
Head→Inter-household
transfers

Intra-household transfers
transfers between individuals living in thesame household.
4

1

Introduction: Public transfers to the elderly

Different types of retirement-income provision in Korea
3rd tier

2nd tier

Voluntary private pension, saving, private transfers
Corporate Pension(mandatory)

IRP

National Pension System
1st tiertargetSpecific
CorporatePension

Basic Old-age Pension
National Basic Social Security
worker* Taxonomy from OECD Pensions at a glace.
* Etc: soldier/civil servant/teacher

employee/Self-employmentetc.

5

1

Introduction

Question 1• At the macro level, what happened in public and private transfers to theelderly in Korea?
• How have private transfers changed when intra-household transfers are
considered together with inter-household transfers?

Question 2• At the individual level, did private transfers to the elderly decrease as
public transfers of them increased?
•Is there the ‘Crowding-out’ effect of the private transfers by publictransfers?

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2

Theoretical Framework

Concept: Public and Private transfers to the elderly•

Components of the retirement income.

•Economic mechanisms used to reallocate resources across generation.

Theories: Motives for private transfers••

In Altruism model: the donor cares about the utility of the recipient.
In Exchange model: People expect to get something back in return.

Existing works of the ‘Crowding out’ effect•‘Crowding out’ has implications for the efficacy of public transfer or redistributive programs andprogram evaluation.

Motives

Crowding-out effect

Effect of public transfers

Altruism

Altruism is strongly linked
with the crowding out hypothesis

Government redistributive policies could be neutralized by
the change in private transfers

Exchange

Unclear, Depend on each other’s
marginal utility of consumption

Exchange motivated transfers could reinforce the effectsof public transfers
73-1. Research Questions• How much private transfers flow from adult children to their parents

Q. 1

considering intra-household transfers?
• How have public and private transfers changed over time?

Q. 2• Did public transfers crowd-out private transfers to the elderly in Korea?

83-2. Data and Measure• Data: Korea Welfare Panel Study(KoWePs) 3rd to 10th wave (2008 ~ 2014)• The unit of analysis: the elderly households of which at least one of thehousehold member is elder than 65.
• Divide the elderly household into 2 groups: To focus analysis on the groupwhich was really affected by public transfers increasing.
Analysis Model

BeforeTreatment

AfterN(household)

Model 1

2007

2010

2,330

Treatment group1

Not Received

Received

1,833

Comparison group1

Not Received

Introduced
Basic Old-age
Pension(In 2008)

Not Received

497

Model 1

2013

2014

3,506

Received(Increased)

2,779

Not Received/Received(maintained)

727

Treatment group1
Comparison group1

Not Received /Received
Not Received/Received

Reformed
Basic Old-age
Pension(In 2014)

93-2. Data and Measure

3rd tier2nd tier

Voluntary private pension, saving, private transfers
Corporate Pension(mandatory)

IRPNational Pension System – Defined Benefit

1st tier

SpecificCorporatePension

Basic Old-age Pension
From 2008, 70% of the elderly have newly received BP.
From July 2014, Benefit level increased up to 200%.
National Basic Social Security

targetworkeremployee/
Self-employment* Taxonomy from OECD Pensions at a glace* Etc: Special Occupation(soldier/civil servant/teacher) Pension Systemetc.

103-3. Research Model[Model 1] Changes in public and private transfers as Basic Pension introduced in 2008
2007
TreatedGroup

ControlledGroup2010
Inter+ Intra
Householdtransfers

Publictransfers

Publictransfers

Inter+ Intra⇨

Publictransfers⇨Publictransfers

B.P

Inter+ Intra
Householdtransfers

Inter+ Intra[Model 2] Changes in public and private transfers as Basic Pension reformed in July, 2014
2013
TreatedGroup

ControlledGroup

Publictransfers

B.P

Publictransfers

2014Inter+ Intra

Inter+ Intra⇨⇨

Publictransfers

Publictransfers

B.P’

Inter+ Intra

Inter+ Intra
113-4. Analysis Procedures

1st step

2nd step

Estimate
Intra-householdTransfers(National Transfer Accounts)→Show a trend of Public and3rd step→

Empirical test of

Private transfers over time.

the ‘Crowding out’ effect(Descriptive Statistics)

(DID)

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3-5. Method:
NTA to estimate intra-household transfers•Deficit
Disposable income less than current private consumption.

•Surplus
Disposable incomeconsumption.

Ex) three generation co-residence

所得surplus

deficit

消費

消費所得
Grandpa(81)Father(56)thancurrent

private•Intra-household transfers
Household members with a deficit receive transfers fromhousehold members with a surplus.

•How to estimate Intra-household transfers
1) Estimate private consumption from household
consumption by using regression analysis.
2) Constitute individual disposable income.
3) Estimate Intra-household transfers by comparing private
consumption and individual disposable income

所得
消費greaterSon(28)133-5. Method: Difference in Differences

Ex) Same Person in a panel data
Basic Pension(before reformed)

Basic Pension(before reformed)•Using a panel data.

•Longitudinal section analysis.

•It helps us to distinguish what institutionalchanges affect.

•2007

2008

2009

(omitted)

2013

2014

2015

By considering the previous two cases ofpolicy reform on public pension system as anatural experiment.

Private transfers

143-5. Method: Difference in Differences

Model1t1

Treatmentt2TreatedⅠ

O1(not received)

B.P introduced

O2(received)

controlledⅠ

O3(not received)(in 2008)

O4(not received)

Motel2t1

Treatmentt2TreatedⅡ

O5(received)

controlledⅡ

O7(not received/received)

B.P reformed(in July, 2014)

O6(increased)
O8(not received/maintained)• Difference in differences analysis• Difference in differences regression analysis
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3-6. Variables

Dependent variables

Explanatory variablesControl variables•

Private transfers•

Inter-household transfers•

Intra-household transfers•

Two cases of the policy reform•

In 2008, Introducing Basic Old-Aged Pension•

In July 2014, Reforming Basic Old-Aged Pension•

Household income•

Household net asset•

Age, the square of the age•

Gender•Marital status•characters of household’s head & household•

characters of institutions(recipient of public pensions, recipientof National Basic Social Security)16

4-1. Results:
Trends of private and public transfers to the elderly
50.00

40.00

30.00

20.00

10.00

0.00
2007

2008200920102011

2012

2013

2014

-10.00

inter

intra

B.P

NPS

SPS

other public

total private

total Public17

4-2. Results:
Trends of private and public transfers to the elderly as aproportion of equivalised disposable household income
35.00

30.00

25.00

20.00

15.00

10.00

5.00

0.00
2007

2008

2009

2010

2011

2012

2013

2014

-5.00
-10.00interintra

B.P

NPS

SPS

other public

total private

total Public18

4-3. Results: simple DID
Changes of private transfers
before and after B.P is introduced

Dependent

Changes of private transfers
before and after B.P is reformedGroups

2007

2010

Difference(t)DependentGroups2013

2014

Difference(t)treated

22.94

23.97

1.03(0.69)

Inter-

treated

22.89

21.23

-1.66*(-1.76)

controlled

24.56

24.24

-0.32(-0.11)

householdcontrolled

20.93

22.23

1.30(0.57)

DID(t)-1.62(-0.69)-0.27(-0.13)

1.35(0.42)

DID(t)

1.96(1.19)-1.00(-0.54)-2.96(-1.19)

Intra-

treated

1.39

6.30

4.91**(2.27)

Intra-

treated

0.65

6.45

5.79(1.10)

householdcontrolled-22.41-10.1912.22(1.6)

householdcontrolled-27.90-19.36

8.54(1.09)

InterhouseholdDID(t)23.81***(4.11) 16.49***(3.03)

DID(t)-7.32(-0.92)

28.55***(4.03) 25.80***(4.11)-2.75(-0.29)

Total

treated

24.33

30.26

5.93*** (2.72)

Total

treated

23.55

27.68

4.13(0.77)

Privatecontrolled

2.14

14.04

11.90(1.52)

Privatecontrolled

-6.97

2.88

9.84(1.22)

transfers

DID(t)-5.97(-0.73)

transfers

DID(t)* p<.05, ** p<.01, *** p<.001

22.19***(3.71) 16.22***(2.94)

30.51***(4.19) 24.80***(3.89)-5.71(-0.59)* p<.05, ** p<.01, *** p<.001194-4. Results: DID regression
Effects of increased public transfers as B.P is introduced (Model 1)
Intra-household

Intra-household

Total-private transfers

Coef.

S.E.

Coef.

S.E.

Coef.

S.E.

treatment(2009)

-1.36

2.71

7.22

6.51

5.87

6.76

groups

1.62

2.49

14.39**

4.73

16.01**

4.96

interactions

1.17

2.96

-7.81

6.65

-6.64

6.95

Effects of increased public transfers as B.P is reformed (Model 2)
Intra-household

Intra-household

Total-private transfers

Coef.

S.E.

Coef.

S.E.

Coef.

S.E.

treatment(2013)

1.07

2.00

7.98

8.34

9.05

8.57

groups

5.34**

1.83

18.88*

7.70

24.22*

7.94

interactions

-3.36

2.13

-6.79

8.31

-10.15

8.56
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5Conclusion

Implications••••

This study verified intra-household transfers which were not found in previous studies due to thelimitation of the data and technical problems.
It confirmed that the concerns about the efficacy of public transfers which could be dampened by the‘crowding out’ effect have been exaggerated.
This study suggests that there is a need of critical investigation of previous studies which argue that
extensions of public transfers need to be controlled to improve policy efficiency.
It can be inferred that public transfers to the elderly are insufficient because public transfers did not
replace private transfers smoothly.

Limitations•••

Technical problems remained in National Transfer Accounts.
Sample selection bias and endogeneity problems remainde because this study did not apply
Propensity Score Matching in DID analysis.
It dealt with treatment not as ordinal variables but just dummy variables in DID analysis.

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