Social protection for happiness? The impact of social pension reform on subjective well-being of the Korean elderly

Expanding the scope of the traditional indicators used to assess economic progress with measures of subjective well-being has been of growing importance in policy modeling. A recent Stiglitz-Sen-Fitoussi report argued that policy decisions and welfare evaluations should be approached from a broader perspective on well-being and take into account metrics derived from self-reports of living conditions. To this end, we evaluate the efficacy of the 2014 social pension reform in South Korea by examining various domains of subjective well-being. The South Korean government introduced a basic old-age pension in 2008 and doubled its monthly benefits in 2014. The reform in 2014 represents one of the largest social welfare expansions in South Korean history, with an aim to improve seniors’ quality of life. Using data from the Korean Longitudinal Study of Aging, we estimate a matched difference-in-differences model that isolates the causal effects of benefit increase from underlying trend changes in well-being. Results show that the reform was associated with an average of 4.8-5.7% increase in financial satisfaction among beneficiaries, and that this correlation was more pronounced for retirees, seniors above age 70, and those at the bottom of wealth distribution. However, there is insufficient evidence to conclude that satisfaction with health status, parent-child relationship, and overall quality of life has improved in response to the reform. Our findings are in contrast to the past evidence on objective welfare gains associated with pension expansion. Taken together this study calls for the use of self-reported well-being data in policy evaluation.