Can Healthy Aging Boost Labor Supply? Evidence from Korea

This paper examines the role of ‘healthy aging’ in boosting labor supply in Korea. First, we use microdata from surveys to assess whether there is evidence that the physical abilities of individuals aged 50 years and above have been improving over successive cohorts. Second, we investigate whether health improvements among older workers influence their labor market outcomes, such as the decision to supply labor or to retire. We use an instrumental variable approach to enable causal inference, proxying exogenous variations in health with the incidence of certain chronic diseases. Our findings reveal that (i) physical health indicators have improved on average across birth cohorts, providing evidence in favor of ‘healthy aging’ in Korea, and (ii) better health increases the probability of participating in the labor force and postponing retirement. Overall, our results suggest that healthy aging has increased the labor supply of older individuals in Korea by around 1.9 percentage points per year during the 2006-20 period. The results for Korea are qualitatively comparable but quantitatively somewhat stronger than those for comparator Asian countries.