Population Age Structures and National Transfer Accounts

in Korea

Chong-Bum An and Eul-Sik Gim

Sungkyunkwan University, Seoul, Korea

I. Introduction

• Apply the NTA to Korea

• Compare the results to those of Taiwan and the United States

Lee, R., A. Mason, and T. Miller (2003), From Transfers to Individual Responsibility: Implications for Savings and Capital Accumulation in Taiwan and the United States, Scandinavian Journal of Economics 105(3):

339-357.

- Age-profile of production and consumption

- Asset reallocations

- Public and private transfers

II. Population Aging, Intergenerational Transfers and

Savings in Korea

1. Population Aging

• Demographic transition in Korea is dramatic.

- Total fertility ratio decreases from 4.53 in 1970 to 1.19 in 2003.

- Life expectancy increases from the age of 62.3 in 1971 to 77.9 in 2005, and projected to 83.3 in 2050.

very rapid population aging.

- Old age population is 7.2% in 2000 (aging society),

to 14.3% in 2018 (aged society)

to 20.8% in 2026 (post-aged society).

2. Intergenerational Transfers

• Familial Support and Family Arrangements– ratio of parents living together with children

• 54.7% in 1994 to 42.7% in 2002

– ratio of familial support for parents• 62.1% in 1994 to 53.3% in 2002.

– ratio of households in which both adult children and old parents live together

• 20.6% in 1975 to 9.4% in 2000.

• Social Security System

• Social insurances– National Pension Scheme (introduced in 1988)

– National Health Insurance Scheme (introduced in 1977, expanded to all citizens in 1989),

– Employment Insurance (introduced in 1995)

– Industrial Accident Compensation Insurance (introduced in 1964).

• Public assistances– National Basic Livelihood Security System (introduced in 1961, expanded to

people under minimum cost of living in 2000),

– medical aid, veterans’ relief, and disaster relief.

• Social welfare services– protect the disabled, the aged, children, women, and mentally handicapped, etc.

• three occupational pension insurances– government employees pension (introduced 1960)

– military pension (separated from government employees pension in 1963)

– teachers pension (introduced in 1973).

• Education

– Total public education expenditures

• 4.60% of GDP in 1977 to 7.1% in 2000.

• government’s burden

– 2.44% in 1977 to 4.3% in 2000

• private sector’s burden

– 2.16% in 1977 to 2.8% in 2000

– Private education expenditures (elementary, secondary)

• 0.7% in 1977 to 2.9% in 2000.

3. Savings

• total savings– 10% in 1960s to 40.4% in 1988

– decreases to 34.9% in 2004.

• Public sector still shows high savings rate after financial crisis

• corporations increases savings.

• But individuals decreases savings.

III. National Transfer Flow Accounts in Korea

1. Data Sources

• records of public institutions– National Pension Statistical Yearbook

– National Health Insurance Statistical Yearbook

• income and expenditure surveys– National Survey of Household Income and Expenditure

(NSHIE)

– Korean Labor and Income Panel Study (KLIPS)

– Household Income and Expenditure Survey (HIES).

2. National Accounts and National Transfer Accounts

• National Disposable Income and its Appropriation Account (NDIAA)

• Capital Transaction Account (CTA)

• Financial Transactions Account (FTA)

• External Transactions Account (ETA)

• Roe E represents the conversion of National Accounts (NA) into National Transfer Flow Accounts (NTFA)

• Income and Capital Accounts by Institutional Sectors and corresponding NTFA.

• General government in National Accounts by Institutional Sectors is classified into public sector.

• And non-financial corporations, financial corporations, and individuals are classified into private sector.

3. Methods and ResultsNTFA Estimation methods Data Sources

Education, private regress on enrollment and age NSHIE

Health, private regress on age NSHIE

Others, private Equivalence scale or regress on age NSHIE

Education, public age- & education level- specific enrollment rate OECD education

Health, Public age distribution of benefits NHISY

Others, public per capita basis NA

Compensation of employees wage of wage workers KLIPS

Entrepreneurial income income of non-wage workers KLIPS

asset income, private net property income of households NSHIE

savings, private changes in net assets of households HIES

asset income & financial asset accumulation, public

age distribution of tax burden NA

Capital and land accumulation, public

age distribution of population NA

Social insurance & tax generational accounting Auerbach, Chun

Inter-household transfers private subsidy and remittance of households NSHIE

Intra-household transfers net transfers = consumption - disposable income KLIPS

Bequests net assets of households and life table NSHIE

Private Consumption

0

1000

2000

3000

4000

5000

6000

7000

8000

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91

Age

Won

Tho

usan

ds

Education Private Health Private Others Private

Other Consumption

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91

Age

Won

Tho

usan

ds

Equivalence Regression

Public Consumption

0

200

400

600

800

1000

1200

1400

1600

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91

Age

Won

Tho

usan

ds

Education Health Others

Labor Income

0

2000

4000

6000

8000

10000

12000

14000

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91

Age

Won

Tho

usan

ds

Labor Income Compensation of Employees Entrepreneurial Income

Asset Income Private

- 5000

0

5000

10000

15000

20000

25000

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91

Age

Won

Tho

usan

ds

Asset Income Private Asset Income Private_QR Asset Income Private_RR

Private Asset Income

- 10000

- 5000

0

5000

10000

15000

20000

25000

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91

Age

Won

Tho

usan

ds

Asset Income Private Entrepreneur Operating Land Finance

Private Savings

- 10000

- 5000

0

5000

10000

15000

20000

25000

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91

Age

Won

Tho

usan

ds

Urban Residual Q Residual R

Public Transfers

- 3000

- 2000

- 1000

0

1000

2000

3000

4000

5000

6000

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91

Age

Won

Tho

usan

ds

Public Transfers Inflows Outflows

Private Transfers

- 6000

- 4000

- 2000

0

2000

4000

6000

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91

Age

Won

Tho

usan

ds

P rivate Interhousehold Intrahousehold Bequest

4. International Comparison

• The Lifecycle Deficits

– In three countries, children and the elderly consume substantially more than they produce.

• In Korea, young adults begin to produce as much as they consume at age 27

• in Taiwan at age 22, in the US at age 24.

• In Korea, adults no longer produce as much as they consume at age 55

• in Taiwan at age 56, in the US at age 57.

• The span of years during which there is a lifecycle surplus is surprisingly short in three countries – in particular, 27 years in Korea.

• production age profiles

– similar until adults reach their early 40s.

– Between the mid 40s and late 50s, however, the income profiles diverge.

• age-profile of consumption

– in Korea, increases continuously to late 10s, and decreases slowly over age of 20

– that of United States during that period increases continuously.

– The case of Taiwan is similar to Korea.

• steeper consumption profile in the US.

• Korea and Taiwan are relatively flat.

• Per capita consumption by those 65 and older was 136 % in the US of per capita consumption of those 20-64– 84% in Korea; 86 % in Taiwan.

– consider just non-health consumption,

– the elderly and non-elderly adults in the US had virtually identical consumption,

– while the elderly of Korea and Taiwan had non-health consumption equal to about 77%, 75% respectively of the non-health consumption of adults between the ages of 20 and 64.

Lifecycle of Production and Consumption, Per Capita, Korea 2000

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91

Age

Rela

tive

to A

vera

ge P

rodu

ctio

n Ag

e20

to 4

0

Consumption Labor Income

Consumption by Age and Components, Korea 2000

0.00

0.20

0.40

0.60

0.80

1.00

1.20

0~19 20~64 65+

Age

Rela

tive

to M

ean

Con

sum

ptio

n Ag

e 20

~64

Health PrivateHealth PublicEducation PrivateEducation PublicOther PrivateOther Public

Lifecycle Deficits, Korea

- 0.60

- 0.40

- 0.20

0.00

0.20

0.40

0.60

0.80

1.00

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91

Age

Rela

tive

to A

vera

ge P

rodu

ctio

n Ag

e 20

to 4

0

• The Reallocation System

• In three countries, asset reallocations put inflows to most working ages, while public and private transfers put outflows at the same ages,

• but in Korea asset reallocations generate inflows over mid 40s when we estimate private asset income and savings from the survey.

• support children are quite similar in three countries.

• Transfers dominate the reallocation system for children.

• Private intra-household transfers accounted for about 60% in three countries.

• old age reallocation systems are quite different

– For Korea elderly asset reallocations plays very important role 79.3% of lifecycle reallocations

71% in the US; 50.1% in Taiwan

– No Dis-savings in Korea

17.4% in the US, -0.4% in Taiwan

– Bequests amounted to 10.3% in Korea

16.8% in the US; 16.6% in Taiwan.

• In the US, public transfers are particular important.– Private transfers to the elderly are small in the US.

• In Taiwan, Public transfers were 27.4% of total lifecycle reallocations for the elderly– private transfers excluding bequests were 39.1% of

lifecycle reallocations.

• In Korea, public transfers amounted to 11.1% – private transfers, 9.6% of total reallocations to the elderly.

Components of Age Reallocation, Aggregate Values, Korea 2000

- 10000

- 8000

- 6000

- 4000

- 2000

0

2000

4000

6000

8000

10000

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91

Age

Won

Bill

ions

Asset Reallocation Public Transfers Inter V ivos Transfers Bequests

Components of Age Reallocation, Means Value, Korea 2000

- 15000

- 10000

- 5000

0

5000

10000

15000

20000

25000

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91

Age

Won

Tho

usan

ds

Asset Reallocation Public Transfers Inter V ivos Transfers Bequests

Components of Age Reallocation, Aggregate Values, Korea 2000

- 6000

- 4000

- 2000

0

2000

4000

6000

8000

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91

Age

Won

Bill

ions

Asset Reallocation_S Public Transfers Inter V ivos Transfers Bequests

Components of Age Reallocation, Means Value, Korea 2000

- 8000

- 6000

- 4000

- 2000

0

2000

4000

6000

8000

10000

12000

14000

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91

Age

Won

Tho

usan

ds

Asset Reallocation_S Public Transfers Inter V ivos Transfers Bequests

• Sources of Support

• In three countries about 3~4% is from the earnings of children.

– Inter vivos transfers constitute 54% in Korea; close to 60% in Taiwan and in the US.

– Public transfers constitute 29% in Korea; 37% in the US; 34% in Taiwan.

• The finance of consumption by the elderly is different

– Work plays a similar role in three countries

– Asset reallocations and inter vivos transfers are more important in Korea;

– asset reallocations and public transfers are more important in the US;

– Private, familial transfers are more important in Taiwan.

Finance of Consumption

31914

3829

2454

420

- 22

- 40

- 20

0

20

40

60

80

100

120

140

0~19 65+

Age

Perc

enta

ge

Work Asset Reallocation Public Transfers Inter V ivos Transfers Bequests

IV. Conclusions

• Korea is now experiencing the fastest population aging in the world.

• Intergenerational Transfers in Korea experiences the transition era

– co-residence is decreasing

– dependency on the social programs expands.

• Growth also moves to a stage of slow speed.

• Thus, a study of the reallocation of resources across age groups in Korea passing through such the transition can draw the sufficient attention.

• The development of National Transfer Accounts enables us to show the current status of Korean intergeneration transfer and to predict the future.