KDI - Korea Development Institute - RESEARCH - Research Areas

Summary

Policy Study KOR Enhancing the Effectiveness of the Long-Term Care Insurance System

Korea’s rapid aging has brought the pressing policy concern of social hospitalization to the forefront. Older adults with low medical but high long-term care needs often occupy beds in high-cost medical institutions for extended periods―a trend that is driving up elderly medical spending. In 2008, the government introduced the Long-Term Care Insurance (LTCI) system to address the growing demand for care among older adults and improve their quality of life, while curbing inefficient medical spending. Since then, long-term care services have expanded in both eligibility and scope. The original three-grade classification was restructured into a six-grade system encompassing older adults with mild dementia, and home-based benefits were strengthened as part of a broader shift from facility-centered to home-centered care.

This study uses the Elderly Cohort Database of the National Health Insurance Service to examine how expanding LTCI affects medical expenditures. For identification, it employs a fuzzy regression discontinuity design and an event study design, exploiting the fact that LTCI grades are assigned based on the Long-Term Care Need Score and that the costs and benefits of these grade assignments shift exogenously around each threshold.

Comparing first-time applicants near each grade threshold, the analysis finds that, for Grades 1 and 2, which correspond to greater care needs, the expansion of either facility-based or home-based benefits reduced medical facility utilization and medical expenditures. By institution type, expenditures declined at hospital-level institutions and long-term care hospitals; by utilization type, inpatient costs decreased. For Grades 3 through 5, by contrast, expanding home-based benefits did not have a statistically meaningful effect on reducing medical expenditures. The event study results show that for the Cognitive Support Grade, which covers older adults with mild dementia, expanded home-based benefits lowered medical expenditures.

These results suggest that the effect of LTCI on medical expenditures may be heterogeneous across grades. Particularly for Grades 3 through 5, the quantity and quality of home-based services may have been insufficient to provide the integrated support to meet complex needs for both medical and long-term care. For the Cognitive Support Grade, however, beneficiaries face fewer physical constraints compared to those with greater care needs. This allows easier access to cost-efficient services such as Day and Night Care Centers for extended hours, which may explain the relatively larger reduction in medical expenditures.

Based on these findings, the study proposes policy measures for improving the quality of home-based care through the integration of medical and long-term care services. In particular, drawing primarily on international case studies, it offers recommendations to ensure the stable and effective implementation of the Integrated Care Support System scheduled for 2026. These measures include introducing intermediate long-term care facilities capable of providing a continuum of medical and long-term care services; developing a specialized workforce to ensure the smooth operation of the new framework; optimizing the expansion of this workforce in depopulating regions; and clarifying accountability for social hospitalization among stakeholders to improve the efficiency of medical expenditures.

Summary

KDI FOCUS Eldercare Workforce: Projections and Policy Implications

Operating beyond the super-aged threshold, Korea faces deepening shortages in its eldercare workforce as the sector struggles to attract workers. While better job quality is imperative to expand this workforce and maintain the quality of life for older adults, incentives for domestic workers alone will not close the gap. Visa policy needs to change to bring in foreign care workers, and care robot technologies should be actively deployed to raise labor productivity in the sector.

- Demand for formal eldercare services is expected to rise sharply, with workforce shortages deepening in step.

- Demand for LTC services is projected to increase by more than 2.4 times between 2023 and 2043.

- Health improvements offset demand only modestly. The growing 85+ population will drive faster growth in high-intensity care (Grades 13).

- The supply of LTC workers is projected to peak at 806,000 in 2034 before declining.

- The share of care workers aged 60 and over is expected to rise from 63.1% in 2023 to 72.6% in 2043, reflecting an increasingly aged workforce.

- Holding the 2023 caseload per care worker constant would require an additional 990,000 workers by 2043.

- Differences in the pace of aging across regions will widen disparities in the number of beneficiaries per care worker.

- Foreign care workers comprised just 0.9% of the total workforce in 2023, a marginal presence in the sector.

- With 56.6% of foreign care workers aged 60 or over and 77% concentrated in the SMA, their capacity to mitigate workforce aging and regional supply disparities remains highly constrained.

- Visa policy for foreign care workers should shift to occupation-specific visas with managed aggregate inflows, guided by the extent to which better job quality can expand the domestic workforce.

- Applying current EPS service-sector quotas to care facilities would permit up to 63,000 foreign workers.

- The E-7 care worker visa pilot should be expanded in scale, alongside efforts to secure sufficient enrollment for the associated training program.

- Attracting domestic workers and retaining recruited foreign careworkers both require better job quality.

- Targeted incentives are needed to encourage employment in underserved regions and ease supply-demand imbalances.

- Care robot uptake in Korea remains low, with just 6.4% of surveyed facilities deploying them.

- The main reason for deploying care robots is to ease the physical burden on care workers; adopters report workload reductions of more than half in some cases.

- Cost is a key barrier to adoption: 51.8% of care facilities would deploy care robots if cost subsidies were provided.

- Care robot policy should expand beyond its developer-centered focus to include support for care facilities, promoting wider adoption in frontline care settings.

Summary

Research Monograph KOR Who Cares for Us?: Policies on Eldercare Workers

South Korea reached the super-aged mark in December 2024, with over 20% of its population aged 65 and older. Eldercare jobs, labor-intensive and emotionally demanding yet accessible to low-skilled workers at low wages, are globally undesirable, leading to labor shortages in advanced economies. As baby boomers (born 1955-1963) enter the late elderly (75 and older) after 2030, demand for eldercare services is projected to surge, worsening supply-demand imbalances.

This study examines the current state and limitations of Korea’s eldercare workforce to propose policy improvements. It estimates eldercare labor supply and demand to forecast the scale of labor shortage and discusses strategies for workforce expansion. Additionally, an empirical analysis assesses how quantitative and qualitative workforce expansion impacts the quality of life for residents in long-term care facilities, providing policy insights.

Chapter 2 forecasts demand for eldercare services and estimates the eldercare labor supply to assess the scale of labor shortage and analyze supply-demand imbalances at the national and metropolitan/provincial levels. The findings indicate that the rapid rise in the super-aged population will sharply increase demand, outpacing the growth of care worker supply and deepening supply-demand imbalances. Regional variations in aging and available workforce are expected to widen the regional supply disparities, suggesting the need for proactive and region-specific workforce expansion policies. This chapter also estimates demand for services that reflect improvements in elderly health in the past decade, highlighting that workforce expansion alone is insufficient to resolve the supply-demand gap amid sustained demand growth. Managing demand for long-term care services through elderly health promotion and functional improvements is essential.

Chapter 3 investigates how expanding the eldercare workforce in long-term facilities affects health outcomes for care recipients. Using health insurance claims and long-term care insurance data, it examines the impact of the 2018 minimum wage increase and the 2022 staffing requirement changes on facility employment and recipients’ medical service utilization. The results indicate that workforce expansion is associated with reduced medical service use, leading to positive health outcomes, suggesting investment in care worker expansion can be a cost-effective policy measure.

Chapter 4 empirically analyzes the impact of enhancing nursing functions in eldercare workers on care recipients and discusses the need for improving their expertise. This chapter examines how changes in nursing staff skill composition following the 2018 minimum wage increase and the specialized nursing care unit pilot program launched in 2019 affected recipients' medical service utilization. The analysis shows that strengthening medical functions in long-term care facilities significantly reduces residents' use of high-cost inpatient services, leading to lower overall healthcare expenditures. While the increased costs of long-term care services partially offset these savings, the results suggest that the specialized nursing care unit program aligns with policy goals of optimizing healthcare utilization among facility residents.

Chapter 5 identifies the characteristics of foreign care workers using administrative data, albeit to a limited extent, aiming to enhance understanding of migrant labor in the eldercare sector. With restricted foreign worker employment in eldercare roles in Korea, this chapter assesses the potential impacts of their integration through existing literature. Furthermore, it reviews specific policy responses from countries utilizing migrant worker policies to mitigate eldercare labor shortages and discusses implications for Korea's eldercare sector.

Chapter 6 proposes future policy directions for eldercare workforce expansion based on the findings from the preceding chapters. First, quantitative workforce expansion enhances job quality, reduces workload through care technology, and utilizes migrant labor. Second, elevating the professional competence of the eldercare workforce involves strengthening nursing functions in long-term care facilities, clarifying the scope of nursing care that can be provided within such facilities, and enhancing education and training in geriatric medicine for facility staff. Third, managing care demand through health promotion entails implementing mental health and chronic disease management strategies to delay the need for eldercare. By addressing these areas, this study aims to contribute to the development of sustainable policies that ensure adequate workforce supply while improving the quality of eldercare services in Korea.

Summary

KDI FOCUS Women’s Career Interruptions and the Declining Fertility Rate in South Korea

In South Korea, more women are postponing or forgoing childbirth due to concerns about career interruption. Their conscious decision to refrain from motherhood is estimated to be responsible for about 40% of the decrease in the fertility rate. In the face of the world’s lowest fertility rate, Korea needs to overhaul its policies to better support work-life balance, enabling parents to maintain their careers while raising children.

- Traditional economic theory explains the decline in fertility rates as a result of the increase in women’s opportunity costs.

- Since the 2000s, a positive correlation between women’s labor force participation rates, income, and fertility rates has been commonly observed in high-income countries, which appears to be closely associated with the extent to which women (mothers) can balance work and family life.

- South Korea’s low fertility rate may have stemmed from the disproportionate burden of childcare on women, combined with the persistent difficulty in balancing work and family life, leading women to postpone or forgo childbirth.

- If the presence of children significantly affects women’s probability of career interruption, the number of women who forgo childbirth while maintaining their careers due to these concerns may increase.

- If young women choose to have children, their probability of career interruption increases by about 14%p, leading to a higher likelihood of experiencing a substantial level of economic loss throughout their lifetime.

- Since the mid-2010s, Korea’s total fertility rate has rapidly decreased, as the gap in career interruptions based on parenthood status has widened.

- Recently (2013~19), the gender employment gap has narrowed. Still, this converging trend has been limited to the young without children, ironically increasing the women’s opportunity costs for choosing to give birth. This increased child penalty is estimated to account for about 40% of the overall decline in the fertility rate.

- Policies aimed at preventing career interruptions for women with children are expected to contribute to raising the fertility rate by reducing the number of women who delay or forgo childbirth.

- Policies that mitigate career interruptions for women with children can increase labor supply and prevent the erosion of irrecoverable human capital, thereby not only helping to raise the fertility rate but also promoting macroeconomic growth.

Summary

Policy Study KOR Income Mobility in Korea and Policy Implications

This study examines the limitations of income mobility indicators, which are mainly used in existing studies, and presents the results of applying the analysis method of Krebs et al.(2019) to Korean survey data. The temporary income shock on residual income, which is not explained by individual characteristics such as education, job career, age, and so on, increases income mobility, but has a small impact on social welfare. On the other hand, the faster the permanent income shock disappears, the faster the difference between the residual income of low- and high-income earners decreases, and the higher the income mobility and social welfare. Of course, the greater the variance of the initial permanent income variance, and the greater the magnitude of the permanent income impact afterwards, the higher the income mobility but the lower the social welfare. In addition, 80 percent of one-year short-term income mobility was analyzed due to temporary shocks, including measurement errors, so it seems desirable to analyze income mobility analysis at least over the span of three years.

Korea’s income mobility itself is analyzed to have increased further since around 2012, but social welfare has decreased. This implies that the analysis of income mobility indicators themselves should not be the sole purpose of analysis. In order to increase social welfare as well as increase income mobility, it seems necessary to reduce the persistence of permanent shocks and reduce the size of external economic shocks that result in changes in residual income.

Even if income mobility is slightly reduced after tax, personal income tax acting as a buffer that can alleviate the size of income shocks increases social welfare. In this regard, it seems necessary to impose more burden on high-income earners of health insurance premiums and national pension premiums. the government cash transfer, which is being provided for the purpose of protecting the vulnerable, rather significantly reduced income mobility and social welfare, which seems due to the sharp increase in the portion of government cash transfer given to the top 40 percent earners comparing to 2007-2008. It is necessary, through further review, to be more careful in setting the beneficiaries of policy measures so that government cash transfer can be concentrated on the vulnerable.

The new income mobility analysis method introduced in this study can be applied to the study for income tax reform through a more detailed analysis for each component of income tax. However, this will be possible only when the National Tax Service has wider access to detailed items on individual income tax return form. In addition, the portion of government cash transfer given to high-income earners is also deemed for further review using administrative data.

Summary

KDI FOCUS Intergenerational Equity and Sustainability in Korea: Toward Participatory Policy Governance

□ Cases of policy decision-making processes that fail to fully recognize the foreseeable problems facing younger and future generations indicate that current policy governance is vulnerable in terms of intergenerational equity and sustainability. Hence, it is vital to design an effective policy governance system for resolving intergenerational problems; one in which policymakers can consider the long-term impact of their decisions not only on different living generations but also on future generations. To fulfill this task, a participatory policy governance system has been proposed as a way of promoting the input from different generations, and on behalf of future generations in policy decision-making processes in the legislative and administrative sectors. Creating a civic culture for future responsibility at the community level should be also emphasized. Institutionalizing the participatory policy governance system and the culture for future responsibility could help to alleviate increasing generational conflict in Korea during the coming era of slow growth and aging population.

- Generational conflicts are increasingly likely to grow stronger in the policy decision-making process as well as in voting.

- Indeed, some policy cases even failed to take into account of the fully expected problems and are simply centered on present generations.

- Most respondents in all age groups agree on the need for an institutional mechanism that could strengthen younger people’s political influence.

- Positive responses to the willingness for intergenerational communication and discussion outnumber the negative responses, while 20s remain laid-back.

- Efforts to seek intergenerational equity and sustainability encounter challenges such as deepening generational heterogeneity resulting from rapid changes in Korean history, rapid aging of the population, weak social trust, and poor capacity to resolve conflicts.

- Efforts are needed to appoint representatives of younger and future generations to the National Assembly through the proportional representation system, to establish a permanent committee for future generations, and to lower the voting age.

- Other efforts include establishing a presidential committee for future generations, creating a system of participatory budgeting that includes young people and adolescents, gathering public opinion through direct democratic methods, and enhancing access to policy information.

- Improving civic awareness and capabilities through civic movements could serve as a basis for pursuing broader participation, deliberation, and consensus building in governance.

Summary

Research Monograph KOR Intergenerational Equity and Sustainability in Korea

Pressured by mounting social conflict, Korean society is struggling on weak capabilities to secure social trust and coordinate public issues. The nation already bears the heavy weight of old feuds: chronic ideological conflict born from the long history of war and division; regional conflict caused by unbalanced regional development and division, which are rooted in party politics; and ethnic conflict arising from the growing influx of foreigners. However, combined with aggravating intergenerational conflict, social cohesion is poised to become an even bigger challenge for Korea.

This study is the result of multidisciplinary efforts to analyze and seek out feasible solutions to newly looming conflicts between generations. Intergenerational conflict is not simply the consequence of rapid changes within Korean society and resultant widening gap of experiences and awareness between generations. Conflict of interest between generations can be triggered by structural change with respect to the direction of distribution and investment brought on by a rapidly aging population and slow-growth phase of the economy, among others. This is well reflected in some young adults’ negative attitude towards the elderly welfare policy, extension of the retirement age and housing price stimulus plan.

In recognition of current conditions, this study first analyzes the generational disparities in terms of social awareness regarding social values, political behavior patterns and citizenship; which often sew the seeds of conflict as well as provide ways to reveal them. Then, it looks into intergenerational equity issues with respect to tax revenue and expenditure, encompassing the intergenerational tax burden and public transfer expenditure. Furthermore, it analyzes intergenerational problems in key social policy areas, including employment, housing and pension, and presents a win-win solution. Finally, the study concludes with suggestions to improve policy governance which will, in turn, enhance intergenerational equity and sustainability.

Summary

Research Monograph Measuring and Explaining Subjective Well-being in Korea

Subjective well-being has attracted sharply increasing attention among researchers and policy makers in recent years. The public also pays a lot of attention to it, evidenced by the heavy use of the word “happiness” in media. Some researchers argue that subjective well-being measures should serve as important and reliable measures of human well-being, complementary to the more traditional, more material wellbeing measures such as Gross National Income (GNI). The World Happiness Report 2012 and 2013 strongly support the idea. The Organization for Economic Co-operation and Development (OECD) published Guidelines on Measuring Subjective Well-being in 2013 to help governments planning to measure subjective well-being, and to provide standards for how it is done. The Korean government seems to move in this direction: One of the main agenda of the government of Korea is to increase the happiness of each citizen. However, there is no comprehensive study on Korea’s subjective well-being to guide policy makers. For example, Korea is often labeled as an unhappy society, as reported by media and perceived by the public, based on some scattered evidence. Is it true? Existing studies do not provide a clear answer. This study is the first comprehensive investigation into subjective well-being in Korea. We aim to show a clearer and more complete picture of Korea’s subjective well-being, including its past and current status, its distribution over time, cohorts, and regions, and its determinants, based on the vast majority of available data. We then offer a few tentative policy suggestions. There are six chapters in this report. The main points are summarized as follows.

Summary

KDI FOCUS Relative Concern: Pros and Cons and Lessons to be Learned

□ Individuals with a strong tendency to compare themselves to others are those who place the priority on work, position, and material goods; have a high degree of financial success; and tend to engage in overconsumption and conspicuous consumption. However, this relative concern was correlated with poorer health and low degrees of happiness and life satisfaction. In order for upward comparison to be a catalyst for self-development, fair competition must be ensured. Relative concern can be used to nudge people into socially desirable behaviors, but in order to increase the degree of happiness, it is necessary to counter the negative effects of social comparison and look after the quality of life to enable people to enjoy a balanced life.

- Relative concern is a double-edged sword. It can have the positive effect of stimulating self-development, but it can also have a negative effect on happiness.

- Around 36% of Koreans consider it important to compare their standard of living with people around them, while 25% think it is not important.

- People who are inclined to relative concern tend to prioritize work and material values and have a goal-oriented mindset.

- Individuals with a tendency for relative concern were also likely to exhibit herding and maximizing behavior, while their altruism tended to be limited to their children and their spouse.

- For each one-point increase on the relative concern scale, monthly income went up by 29%, real estate value by 22%, and financial assets by 21%.

- For each one-point increase on the relative concern scale, expenditures on high-priced durable goods such as automobiles went up by 42 %.

- Individuals inclined to relative concern had high levels of anxiety, stress, depression, insomnia, and feelings of isolation, and they had low levels of happiness and satisfaction about their life as a whole.

- For each one-point increase on the relative concern scale, happiness fell by a level commensurate with a 20 million won drop in household income.

- Relative concern, which Respondents with a tendency for relative concern were more likely to attribute unhappiness to restrictions on upward mobility, the economic recession, decreasing material satisfaction, anxiety about security issues, and in particular an increase in relative deprivation.

- Relative concern, which implies concern about other’s opinions, can be used to lead people to make conspicuous donations and to reduce use of electricity through peer pressure.

- As competition intensifies in a zero-sum game where success is narrowly defined, the positive effects of relative concern are reduced.

- If upward comparison is to become a catalyst for development, the person being compared to must not be too far ahead; there must be a way to catch up with that person, and it must be possible to compete with them.

- At present, most Koreans prioritize work and financial success. If they are to enjoy greater happiness, they need to achieve a balanced life in which consideration is also given to well-being in the domains of personal relationships, health, and the community.

- Research into behavioral economics, which can reveal the characteristics of human psychology and behavior, has the potential to promote policy goals through non-coercive and inexpensive means.

Summary

Policy Study Status Race and Happiness: What Experimental Surveys Tell Us

People’s concern about their relative status is regarded as an explanation to the Easterlin paradox, which reports that happiness has not increased despite continued growth in average income. The strength of concerns about relative position varies across people.

First, we examine the socio-demographic characteristics and values that lead to a strong relative concern. And then we comprehensively investigate differences in financial outcomes, health, happiness, and behaviors by the degree of relative concern. In particular, Korea is an appropriate country for this study as Koreans have experienced rapid economic growth and there exists severe status race in their education system and labor market. Using data from our experimental survey of 3,000 Koreans, we examine their preference for positional goods and behaviors regarding herding, status seeking, and altruism.

Our results show that those who have stronger relative concerns are more likely to live in upscale districts and place economic values above non-pecuniary values, and, in reality, they have better financial outcomes. They also exhibit higher tendencies of overconsumption and conspicuous consumption. Their health, however, is worse than others, specifically in regards to psychological health. Moreover, overall happiness and satisfaction in every dimension are proved to be lower for those who have stronger relative concerns. In a series of hypothetical situations of our survey, they consistently show higher inclinations toward status race and herding but lower degrees of altruism or sympathy.

As for policy implications, we discuss the following issues. First, we show Koreans’ diagnoses of the reasons for their unhappiness and examine how relative concern affects such diagnoses. Second, we discuss government intervention to remedy positional externalities based on our survey results about people’s perceived positionality of selected goods that have a negative influence on others’ welfare. Third, we show that Koreans’ relative concerns do not necessarily arise from their materialistic values and they are undergoing transformation of individual values toward post-materialism, which makes a room for remedial change of institutions that have led excessive social comparisons and competitions. Fourth, we discuss policy directions for reducing negative effects of social comparison in the context of contemporary Korea focusing on the education system and labor market reform. Last but not least, we suggest some examples of nudge ideas using people’s relative concern for the whole society and the motivation of self-improvement via social comparison, which implies that relative concern can be made good use of as well.

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