age populations, and yet it is likely that exits from productive activity are shaped by household wealth and individual preferences, as well as by institutions and policy. Alternatively, continued participation in the workforce may reflect the ability of workers to learn new skills and to remain productive into older age. With an eye toward providing insight into the retirement decision in East Asia, this chapter presents descriptive evidence on retirement and labor supply patterns in China, Indonesia, and Korea.
While China’s rapid demographic transition is frequently highlighted in news accounts because of the sheer size of its aging population, Korea and Indonesia are also confronting rapidly aging populations.3 In contrast to most developed countries, however, rural and urban populations face significantly different retirement systems. Differences across rural and urban areas in both retirement patterns and access to financial support are most extreme in China, where most long-term residents in urban areas have had formal wage employment, retire at a relatively young age, and receive substantial support from pensions. Rural residents, by contrast, have lacked pension support and may expect to work in farming or other agriculture-related activities until relatively late in their lives.4 In this sense, urban residents of China with formal sector employment face retirement decisions that are more similar to those of residents in developed countries. Residents of China’s rural areas, by contrast, share more in common with residents of other developing countries, and make labor supply decisions in the absence of both pension availability and the constraint imposed by a mandatory age of retirement from the formal sector.
This chapter brings together information from several data sources to highlight differences in labor supply of older workers across urban and rural China, Indonesia, and Korea, and to review patterns and trends in the context of institutional differences across these three countries and between urban and rural areas. For perspective on retirement patterns in East Asian economies, we then place the retirement decision in China, Indonesia, and Korea in the context of employment patterns of older
3 Recent research by demographers at the U.S. Census Bureau suggests that the old age dependency rates in 2020 will reach 22, 19, and 13%, for Korea, China, and Indonesia, respectively, and by 2040 these rates will rise to 53, 40, and 25% (Kinsella and He, 2009). A preliminary release from China’s 2010 census informs us that 13.3% of China’s population is now over 60 as opposed to 10.3% in 2000, while the size of the future workforce has dwindled, with individuals under 14 accounting for 16.6% of the population, down from 23% in 2000 (National Bureau of Statistics, 2011).
4 New initiatives are currently under way in rural China. A government-subsidized contributory rural pension piloted in 2009 will be rolled out to cover all rural counties over the next three years. In cities, a new pension scheme, modeled on the rural pension program, was first introduced in July 2011 with the aim of providing financial protection in old age to nonworking urban residents and informal sector workers.