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Estimation of self-employed pension income using Markov conversion rates

  • Journal of Insurance and Finance
  • 2018, 29(2), pp.39-71
  • DOI : 10.23842/jif.2018.29.2.002
  • Publisher : Korea Insurance Research Institute
  • Research Area : Social Science > Business Management
  • Received : March 9, 2018
  • Accepted : May 10, 2018
  • Published : May 31, 2018

Sung-ho Kang 1 Keonshik Ryu 2

1(사) 보험연구원
2보험연구원

Accredited

ABSTRACT

This study estimates pension income replacement rate based on the estimation of the lifetime work history of self-employed using the Markov conversion rate. First, the estimation results show that the work type changes continuously during the lifetime. As a result, the total work period of workers who entered the labor market at the age of 25 was estimated to be 27.3 years (wage work period 19.5 years, self-employment period 7.8 years) and non-work period 12.7 years. In particular, the wage work period rate of self-employed(wage superior, mixed type) was estimated to be 86.0% during the lifetime, which means that self-employed also have considerable wage work period. Next, the estimation results of the pension income for pure work type(not changing during life) show that the replacement rate of pure wage earners is higher than that of the pure self-employed. On the other hand, the replacement rate for mixed work type(changing during life, but in the case of current self-employed) was higher in the order of wage superior type, self-employed superior type and non-business superior type. These pension income are generally low for self-employed pensioners compared to wage earners, but this is determined by the wage and self-employment periods and income levels established during their lifetime. Therefore, in suggesting the old-age income guarantee policy for self-employed, this paper proposes that it is necessary to consider not only the current work type but also the past work type, ie, the change of work history.

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