The evolution of income risk and consumption insurance in South Korea over the last two decades

• Main Authors: AHN, Taehyun, CHEE, Chung Gu, KIM, Seonghoon
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2021
• Subjects: Asian Studies; Behavioral Economics
• Online Access: https://ink.library.smu.edu.sg/soe_research/2439; https://ink.library.smu.edu.sg/context/soe_research/article/3438/viewcontent/Evolution_Income_Risk_Korea_av.pdf
• Institution: Singapore Management University

Using data from the Korea Labor Income Panel Study, we study the evolution of income risk and consumption insurance against transitory and permanent income shocks in South Korea over the last two decades. We find a decreasing trend in both income and consumption risks. Furthermore, we estimate that 47.6% of permanent income shocks and 9.8% of transitory income shocks pass through to consumption. We also provide evidence of substantial improvements in consumption insurance among the less educated and the older cohort nearing retirement. Our results suggest that recent developments of social safety net and welfare system may have played an important role in insuring income shocks in South Korea.