Media  Global Economy  2023.06.02

In Asia, unlike in Western countries, the poverty rate among the elderly is not decreasing

Le Monde on May 19th, 2023

This article was initially published in French in Le Monde newspaper on 19. May 2023, as part of a series of monthly columns on Asian economies. The original article can be found here:

East Asia

Column by Sébastien Lechevalier, Professor at Ecole des Hautes Etudes en Sciences Sociales (EHESS, Paris), Senior Researcher at Maison franco-japonaise (UMIFRE 19, Tokyo) and at the Canon Institute for Global Studies (CIGS, Tokyo).

In South Korea, but also in China, Taiwan and Japan, the wealth gap is widening between the over-65s and the rest of the population, observes Sébastien Lechevalier in his column.

Column. While poverty rates for the general population have fallen sharply in East Asia as a result of the remarkable economic development of recent decades, this is not the case for the elderly, unlike the situation in most Western countries at comparable levels of development. An international team of Korean, Japanese, Taiwanese, and Chinese economists and sociologists has investigated the causes of this gap ("What Makes Old-Age Poverty in East Asian Societies So High?", Inhoe Ku, Wonjin Lee, Aya Abe, Zhu Mengbing, Li Shi, Chungyang Yeh, Dongjin Kim, LIS Working Paper Series nᵒ 842, 2022).

By convention, the authors set the poverty line at 50 percent of median disposable income to calculate relative poverty rates. China has the highest rate for the whole population (21 percent), Taiwan the lowest (10 percent), with Japan and South Korea in between (16.1 percent and 14.6 percent, respectively). For comparison, in the West these rates range from 5.7% in Denmark to 16.7% in the United States.

The results are significantly different for people over 65 years of age. The most remarkable case is that of South Korea, where the poverty rate for this category reaches 47.2 percent! The gap with the average rate (for the whole population) is also significant in Taiwan (26%) but more moderate in China (27%) and especially in Japan (19%). In contrast, the gap is non-existent or small in Denmark, Finland, Germany and Italy, and slightly higher in the United States. The only Western exception is Australia, where the rate, 26.5 percent, is more than double the population average.

A necessary global approach

Understanding these differences between Asian and Western countries requires a comprehensive approach, as many factors are likely to affect these figures: socio-demographic variables (age, gender, education, proximity of the place of residence to the rest of the family), sources of income (work, including after retirement, intra-family transfers, social transfers), and wealth (ownership of financial assets or housing).

In order to study the weight of these determinants, the authors use comparable data for the year 2013 in the ten countries considered. Their results contradict certain preconceived ideas.

First of all, the level of education of the elderly, which is lower on average than that of the rest of the population due to generational effects, contributes to their greater poverty, except in Japan, where the massification of education is older. Second, the fact that several generations live under the same roof - a phenomenon that is declining in Asia but still much more important than in Western countries - reduces poverty rates.

On the other hand, the level of public support is a fundamental explanation for the gap in poverty rates between the West and Asia, whereas intra-family transfers and the share of income from work reduce this gap. We can therefore understand the importance of maintaining activity for many elderly individuals. Finally, taking into account financial assets and home ownership does not change the level of poverty rates in East Asia compared to Western countries.

All in all, it appears that the economic well-being of the elderly cannot be guaranteed without a significant increase in public income transfers. The varying degrees of the level of these transfers also explain the differences observed between the Asian countries themselves.