It is expected that Korean national pension coveragerate would be higher for low income people because the national pension program has a income redistribution scheme. However, data show that the self-employed with low income are less likely to participate in the national pension. This paper notice the existence of borrowing constraint for the low participation rates of the low income self-employed. When the reduced current disposable income due to national pension contribution has great effect on welfare, there is an incentive to avoid participating in the national pension. Empirical results show that the existence of borrowing constraints reduce the probability of participating in the pension program by 15.7 percent point holding other things constant. Empirical results also show that the borrowing constraint is the most important factor for the participation in the pension program.
It is expected that Korean national pension coverage rate would be higher for low income people because the national pension program has a income redistribution scheme. However, data show that the self-employed with low income are less likely to participate in the national pension. This paper notice the existence of borrowing constraint for the low participation rates of the low income self-employed. When the reduced current disposable income due to national pension contribution has great effect on welfare, there is an incentive to avoid participating in the national pension. Empirical results show that the existence of borrowing constraints reduce the probability of participating in the pension program by 15.7 percent point holding other things constant. Empirical results also show that the borrowing constraint is the most important factor for the participation in the pension program.
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