The employment rate among the elderly (aged 60 and above) has risen constantly since 2010, implying an existence of structural changes in their labor demand or supply. This paper examines the drivers behind the rising elderly employment rate from the labor supply aspect using microdata from the Korean Longitudinal Study of Aging (KLoSA).

A decomposition of the factors behind the increase in the number of workers among the older population shows that the contribution of the employment rate has climbed gradually, with the rise in the senior employment rate being mainly driven by the labor supply (the increase in the labor force participation rate). Despite the poor quality of elderly jobs, primarily due to low wages, the supply of elderly labor has increased significantly.

The empirical analysis shows that the increase in the elderly employment rate has been driven mainly by economic reasons, including a reduction in private income transfers from descendants and a sharp growth in living expenses relative to income from public pensions and assets, as well as by sociodemographic changes, such as the increase in spouses’ employment and improvements in health conditions. The employment rate rose faster in the group with no or low non-wage income from a public pension, private income transfers, or assets.

While the increase in elderly employment is natural considering the downward trend in the economically active population (aged between 15 and 64), an environment must be created where involuntary labor supply is reduced and voluntary supply is encouraged. It is important to broaden the income base for the low-income elderly group that has to work involuntarily, even when supplying labor is difficult for health or other reasons, by increasing social welfare spending and the size of the basic pension. It is also necessary to induce an efficient use of accumulated human capital by creating an environment where seniors can stay longer at their work through re-employment after retirement.