Korea’s Healthy Aging Boosts Senior Labor Supply Amid Urgent Calls for Market Reform

Healthy aging in South Korea, marked by improved physical and cognitive health among older adults—has significantly boosted senior labor force participation, adding about 1.9 percentage points per year despite rapid demographic aging. Yet structural labor market rigidities, limited pensions, and labor market duality continue to push many elderly workers into low-quality jobs, underscoring the need for comprehensive reforms.

South Korea, closely studied by institutions such as the International Monetary Fund, the OECD, the Asian Development Bank, and the Korea Development Institute, is moving faster toward super-aged status than almost any nation in the world. Life expectancy has soared to 84 years while fertility has plunged to 0.72, pushing the elderly share of the population from below 6 percent in the mid-1990s to around 20 percent today. By 2026, Korea is expected to cross the super-aged threshold, with its old-age dependency ratio already nearly double that of Asia. As the working-age population continues shrinking, projected to fall 30 percent by 2050, the country’s economic future increasingly depends on how productively it can engage its older citizens. Yet amid this demographic strain, Korea stands out for experiencing “healthy aging,” with each successive cohort of older adults entering late life with better physical and cognitive health than those before them.

A Surge in Senior Participation, but with Caveats

Labor force participation among older Koreans has risen steadily over the past four decades, from 62 percent in 1980 to about 72 percent in 2024. Many continue working well into their seventies, and participation rates for older men are now among the highest in the OECD. Employment among seniors aged 65 and above is double the OECD average, driven partly by improved health indicators such as grip strength and self-reported well-being. But the story is not purely positive. Women continue to participate at lower rates, and the jobs available to many older workers are lower-quality, lower-wage, and less secure than those held earlier in their careers. Job tenure is brief; only one in four older workers remains in the same job for five years, far below OECD norms.

The High Cost of Aging in a Rigid Labor Market

Korea’s senior workers do not leave the labor market simply because they wish to retire. A deep structural feature of the labor market, the seniority-based wage system, pushes firms to encourage early retirement, often before age 55. Because wages rise automatically with tenure, older workers become expensive to retain, leading companies to nudge them out well before the statutory retirement age of 60 or pension eligibility at 63. This creates a dangerous income gap for many households. Public pension benefits and transfers are among the lowest in the OECD, leaving retirees dependent on part-time, temporary, or self-employed work that offers little stability. Elderly workers, therefore, cluster in non-regular jobs at some of the highest rates in advanced economies, reflecting both limited safety nets and employer reluctance to hire older workers into secure positions.

Healthy Aging as an Engine of Labor Supply

The paper’s central empirical contribution is its finding that improved health significantly increases the likelihood that older Koreans stay in the labor force. Using more than 60,000 observations from the Korean Longitudinal Study of Aging and Retirement, researchers employ a rigorous two-stage least squares method that treats chronic disease onset as an exogenous shock to health. The results are striking: healthy aging boosted elderly labor supply by about 1.9 percentage points per year between 2006 and 2020. Those in their fifties and early sixties respond most strongly, with a decade of health improvement raising participation by 15–20 percentage points. Men display nearly double the responsiveness of women, and lower-income and lower-educated individuals are most likely to continue working as their health improves, often because their financial need is greater.

Reforms to Unlock the Potential of Older Workers

While healthier aging provides momentum, the paper argues that Korea must reshape its labor market to fully harness the productive potential of older adults. Raising the statutory retirement age and eliminating the gap between contribution and pension eligibility ages would reduce income insecurity. More flexible work arrangements, remote work, reduced hours, and job-sharing would help older workers remain employed in a country known for long working hours. Reskilling programs, particularly in digital literacy, are essential as Korea faces intense exposure to automation and AI-driven restructuring. Over the longer term, easing rigid employment protection rules and reforming the seniority-based wage system are crucial to correcting labor market duality and giving firms incentives to hire and retain older workers. Together, these measures could transform Korea’s aging society from an economic burden into a powerful source of resilience and growth.