The Korean Journal of Economic Studies
The Income Cliff Effect after Retirement in South Korea
Taehee Oh (Incheon National University) and Jangyoun Lee (Incheon National University)Year 2024Vol. 72No. 1
 This study utilized the Korean Longitudinal Study of Aging to capture the rapid decline in income at the end of working life (“Income Cliff Effect”) and identified the main causes behind it. The empirical analysis from the Heckman 2-stage fixed-effect models reveals that the labor income of older workers decreases by an average of 42% from the age of 58 to 68, and it is estimated that aging and the separation from career jobs explain 89% of this income decline. Furthermore, while a transition to bridge-job employment has a short-term negative impact on income, a transition from a career job not only leads to a larger decrease in income but also results in a prolonged negative income shock. In particular, this income cliff effect is mainly observed among the high-education and high-income groups. These findings suggest that in order to reduce the high elderly poverty rate in Korea, support should focus on qualitative rather than quantitative aspects of post-retirement jobs for ensuring the better use of experiences and expertise acquired during their working life.