"Income Inequality Among the Elderly Due to Wage and Business Income Gaps... Polarization of Rental Income for Those Over 70"

BOK, 'Report on Population Aging and Income Inequality in Our Country'
Income Inequality Widened Due to Asset Market Overheating

Income polarization among the elderly aged 60 and above in South Korea is significantly higher compared to other age groups, and an analysis has revealed that whether individuals continue working after the statutory retirement age, as well as disparities in business and rental income, further exacerbate income inequality. In particular, for those aged 70 and above, the overheating of the asset market since 2020 has acted as a factor expanding income inequality through differences in rental income.

On the 14th, the Bank of Korea stated in its report on population aging and income inequality in South Korea, published in the 'BOK Issue Note,' that "a considerable portion of income inequality within the elderly population is due to the widening gap in earned and business income following retirement."

As a result of analyzing income inequality by birth cohort to assess the impact of population aging on household income inequality, it was found that the expansion of the elderly population group with significant polarization within the group contributed about 30% to the overall increase in household income inequality from 1995 to 2021.

In particular, the age effect, where inequality among households within the same birth cohort increases with aging, becomes significant from the mid-40s and rises more steeply from the late 50s when retirement age approaches.

Examining income inequality by income type and age group, earned income accounts for the largest share across all age groups, while the contribution of business and rental income increases with age. First, regarding earned income, the main source of household income, polarization between households that have exited the labor market due to reaching the statutory retirement age of 60 and those that remain has intensified.

For business income (excluding rental income), the elderly have a high proportion of non-earning and small-scale operators, and the closure rate is higher than the startup rate, resulting in significant disparities in business performance among households. Rental income also acts as an important factor in income polarization within the elderly due to disparities in accumulated assets. Since 2010, the share of business and rental income in the inequality index by age group has been about 11% for those under 50, but rises to 31% for those aged 60-69 and 39% for those aged 70 and above.

Regarding other income, in the 1990s, private support from children played a role in reducing income disparities among the elderly, but recently, this income distribution improvement effect has weakened. Especially since 2010, due to youth employment difficulties, support from children to parents (private transfer income) has decreased relative to support from parents to children (private transfer expenditure), which has gradually increased.

The report anticipates that the contribution of the age effect to income inequality will further expand as aging accelerates, and based on future population projections, the age effect over the next 10 years is expected to reach two-thirds of the cumulative age effect over the past 20 years.

Son Min-gyu, Deputy Director of the International Economic Research Division at the Bank of Korea's Economic Research Institute, emphasized, "Institutional support such as re-education programs and expansion of job linkage infrastructure is necessary to activate re-employment after retirement among the elderly." He added, "As the working-age population (ages 15-64) rapidly decreases due to low birth rates, expanding labor supply among the elderly becomes inevitable, so labor market structural reforms, including wage and working hour flexibility, should be pursued concurrently to support this."

On the 30th, elderly people are walking on the streets near Tapgol Park in Jongno-gu, Seoul. Photo by Jin-Hyung Kang aymsdream@

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