The Effects of the Korean Welfare System in Reducing Economic Hardship

Background and Purpose: This study examines the effects of the National Basic Livelihood Security System (NBLSS), a welfare program in Korea, on economic hardship. While Temporary Assistance to Needy Families (TANF) and in-kind assistance programs have different eligibility rules (e.g., income levels), the NBLSS provides cash and in-kind assistance to eligible families. This sometimes results in families, whose household incomes are at the eligibility threshold, losing all benefits. In addition to its ‘all-or-nothing' approach, the NBLSS is criticized for low coverage rates, which are partially caused by its family responsibility rule. This rule makes the elderly who have near-poor adult children ineligible for the program. Even when families receive the NBLSS, the program does not guarantee that receipt will reduce economic hardship because of its low benefit levels lower than 35 percent of the median household income. This study examined whether receipt of the NBLSS reduces economic hardship of families. The propensity score weights were used to reduce selection bias.

Methods: The study used data from the Korea Welfare Panel Study (KOWEPS) (n=3,116) used following groups for the analysis: (1) those who are poor and receive the NBLSS; (2) those who are poor but do not receive the NBLSS; and (3) those who are not poor but whose household income is below 60 percent of the median income. Economic hardship was measured by food insecurity, the inability to pay utility bills, and others. Propensity score weights were calculated based on the likelihood of the receipt of the NBLSS, which was predicted by socio-demographic characteristics of the study population, such as: gender and age of household head; the percentage of physically healthy members; and the number of income-earning members. To make it possible to compare the results between the treatment group and the control group, propensity score weight created counterfactual results which cannot be observed in the panel study.

Results: The examination on the likelihood of the receipt of NBLSS shows that: (1) those who previously satisfied the eligibility rules were more likely to receive the NBLSS the following year, regardless of their poverty status; (2) aged household heads were more likely to be disconnected from the NBLSS compared with their younger counterparts with the same conditions; and (3) households with children or disabled members were more likely to receive the NBLSS. When propensity score weights were applied to the receipt of the NBLSS, the results show that the payment significantly reduced economic hardship.

Conclusion and Implications: The study found that the NLBSS provides financial assistance to recipients, which helps them reduce their economic hardship to some degree. Considering that the NBLSS should work as a final safety net and that the gap in pension spending between the countries from the Organization for Economic Cooperation and Development (OECD) and Korea is greater than the cash assistance gap, this study recommends expanding the pension system. In addition, this study suggests modifying eligibility rules and promoting employment of aged household heads.