Can Social Services Reduce Poverty? Evidence from the Korean Welfare Panel Study (KOWEPS)

Background and Purpose: This paper explores the effects of social services – child care subsidies and long-term care insurance – on the ability of female caregivers exit poverty in South Korea. The nation has created a variety of social welfare services targeting the elderly, children, women, and the disabled, which were substantially expanded with the introduction of long-term care insurance for (poor) older people in 2008 and prenatal basic subsidy program for child care in 2009.

The labor market participation of caregivers, mostly mothers and daughters, is a critical means for them to exit poverty. Subsidies for care services can help caregivers participate in the labor market or increase the hours of employment for those already working part-time. Thus, this paper examines the effect of the two programs on the labor market participation of female caregivers and their ability to leave poverty.

Methods: This study analyzes the 2008-2013 (6 waves) Korean Welfare Panel Study (KOWEPS) conducted by Korea Institute for Health and Social Affairs. For the 6 waves, 2,322 households have benefitted from the child care subsidy and 707 households from the long-term care insurance. To isolate the impacts of the programs on i) the exit from poverty, ii) household income, and iii) the labor market participation of female caregivers, we control for subgroup and household fixed effects. The subgroups are households with 0-5-year-old children and/or with members more than 65 years old for each program. By controlling for fixed effects, we can exclude the effects on three dependent variables of demographic factors or unobserved heterogeneity of each household. We also control for time trends and group specific time trends.

Results: We find that female caregivers in households who receive child care subsidies and long-term care insurance are more likely to increase total household income and less likely to be in poverty, but subsidies have little effect on female employment, particularly for those receiving long-term care insurance. This result might be due to likelihood that the care burden for female caregivers can be alleviated by long-term care subsidies, but the effect is not enough to increase participation in the labor market.     

Conclusions and Implications: This paper demonstrates consistent patterns in the ways social services affect female family caregivers in terms of their labor force participation and their exit from poverty. This analysis also permits linking this paper to existing evidence that the high cost of child care and elder care impedes female caregiver’s employment and their exit of poverty. The introduction of the social services described herein represents a major change for social care in South Korea. But this is just a start. The estimates presented in this paper show that child care and elder care subsidies encourage self-sufficiency gained through market work.