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Population aging and living arrangements: Implications on inequality

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  • Lee, Sang-hyop
  • Mason, Andrew
  • Kim, Hyun Kyung

Abstract

Many previous studies conclude that population aging leads to an increase in consumption or income inequality. The results are based on a conventional model that analyzes compositional effects given interage differences in the means and variances of income. These issues are addressed in this paper by (1) developing a new empirical strategy for estimating the effects of population aging, income, and other socio-economic variables on living arrangements; (2) extending the standard model of income inequality to incorporate responses in relation to one aspect of the familial support system - the formation of multi-generational households (or extended households); and (3) applying the models to South Korea, where familial support has been important source of consumption for older people. In particular, this paper complements previous studies by incorporating the responses of familial support systems to changes in the age distribution of the population. Our model and empirical results suggest that (1) population aging could have led to a greater increase in the proportion living in extended households, but improvements in survival have had a weaker effect than the fertility decline on the proportion of people living in extended households, (2) higher incomes of workers in Korea could have led to more of a shift away from extended households, and (3) an increase in both the proportion of the family cohort and the proportion of pensioners living in extended households reduces the variance in income. These results support the argument that co-residence and population aging may reduce income inequality.

Suggested Citation

  • Lee, Sang-hyop & Mason, Andrew & Kim, Hyun Kyung, 2026. "Population aging and living arrangements: Implications on inequality," KDI Journal of Economic Policy, Korea Development Institute (KDI), vol. 48(1), pages 125-152.
    • Handle: RePEc:zbw:kdijep:341450
    DOI: 10.23895/KDIJEP.2026.48.1.125
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy

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