Income Increases During Childbearing Period and Consumption Maintained During Retirement... Policy Responses Needed by Family Life Cycle

It has been revealed that household economic activities, income, and consumption structures show distinct changes during the childbearing and retirement periods, which are transition points in the family life cycle. In particular, during the childbearing period, government tax and fiscal support contributes to mitigating income inequality, whereas during the retirement period, consumption levels are observed to be maintained based on asset structures despite a decrease in income.

Childbearing households see income inequality mitigation through government support

According to a video from the Korea Institute of Public Finance, an analysis using social security administrative data showed that as of 2021, the primary income of childbearing households with children was approximately 38.3 million won, which was higher than the average for all households at 36.31 million won. However, the net burden was approximately 2.59 million won, which was lower than the average for all households at 2.61 million won. The total benefit, including government support, was approximately 2.45 million won, of which social in-kind transfers and child support benefits accounted for 47% each.

In terms of income redistribution, welfare benefits had the greatest effect on mitigating inequality, reducing the Gini coefficient by 4.26 percentage points. On the other hand, the improvement effect of direct taxes and social security contributions was 2.22 percentage points, showing a characteristic larger than the effect on all households. Looking at the changes before and after childbirth, the labor and business income of households after the birth of the first child increased by 46 to 69 percentage points compared to one year before childbirth. This was mainly due to the father's income increasing by 37 to 44 percentage points, while the mother's income decreased by 29 to 49 percentage points. However, the video added that these changes might be overestimated due to limitations in data and methodology.

The final income, considering the net benefit of government policies, increased by 78 percentage points three years after childbirth, exceeding the increase in labor and business income of households. As a result, government policies were analyzed to have played a role in mitigating income inequality for childbearing households.

Retirement households maintain consumption based on assets despite sharp income drop

Households entering retirement showed a pattern of rapid income decrease, but consumption levels and assets were maintained relatively stably. Total household consumption expenditure did not show a statistically significant decrease, and essential consumption such as food, medical care, and housing was maintained or even increased. Although income decreased significantly compared to before retirement, this was partially compensated for by an increase in public transfer income and a decrease in the burden of taxes and social insurance premiums. However, disposable income was characterized by remaining at a low level for a long period.

In the case of assets, no significant changes appeared at most points. This was analyzed to be because the asset structure centered on real estate and the increase in asset values contributed to consumption stability. Meanwhile, it was investigated that at the time of retirement, rather than the spouse's labor supply compensating for the retirement shock, a pattern of "companion retirement" appears, where the couple leaves economic activity together.

Accordingly, the study offered customized policy suggestions by life cycle. Since the impact of tax and fiscal support on income is large compared to all households during the childbearing period and the income redistribution effect varies, it suggested that institutional design is needed that integrally considers the changes in income distribution before and after childbirth and the characteristics of policy tools. During retirement, it emphasized the need for reorganizing the Basic Pension, strengthening the continuity of employment for the elderly, and supporting the conversion of assets into living funds, and a complex approach is needed to increase the stability and predictability of old-age life by linking government support with strengthening the impact of labor factor independence.