Welfare Expansion without Inequality Reduction: Institutional Explanation of Old-Age Poverty in Korea

Abstract

Abstract Old-age poverty in Korea remains exceptionally high among OECD countries despite a significant expansion in pension expenditure. This article presents an institutional explanation for such a puzzle. Using ‘targeting within universalism’ as the analytic framework, this study examines the institutional effects of pension models on old-age poverty in Korea. Firstly, comparative analysis finds that universal provision of pensions negatively affects old-age poverty independent of the expenditure size, identifying Korean pensions as the least universal among OECD countries. Secondly, institutional analysis of the Korean pension system explains why the expenditure growth left a large share of the elderly with no or a partial pension. Finally, microsimulation analysis examines alternative assistance pension models for their potential to alter poverty outcomes. Strikingly, universal models alleviate old-age poverty more cost-effectively than the extant targeting model, questioning the efficiency-based justification for low-income targeting. In particular, the universal floor model appears to be the most effective, allowing greater benefits to the poorer without a means test. Even for assistance benefits, universal models may better remedy poverty under such conditions as low take-up among the needy, prevalence of low-income incidence, and pro-rich distribution of extant social transfers.