Decomposing Earned Income Inequality among Employed Older Adults: The Role of Wage–Hours Interaction in South Korea

Abstract This study examines earned income inequality among employed older adults in South Korea by decomposing it into working hours, hourly wages, and a residual component. Using data from the National Survey of Older Koreans in 2017, 2020, and 2023, the analysis applies the Mean Logarithmic Deviation to investigate the internal structure of inequality within the employed population. A central contribution of this study is to show that the interaction between working hours and wages, captured by the residual component, is the primary mechanism shaping inequality. While inequality in both working hours and hourly wages increased over time, the residual term became substantially more negative and offset a large share of the inequality that would arise from these components. This pattern reflects a negative relationship between wages and working hours, whereby higher-wage individuals tend to work fewer hours, while lower-wage individuals work longer hours. Subgroup analyses reveal substantial heterogeneity across socio-demographic, economic, labour market, and regional dimensions. The equalising role of the residual term is weaker among vulnerable groups, including the older-old, females, low-income workers, temporary workers, and those in non-capital and rural areas, suggesting limited capacity to adjust labour supply under structural constraints. Overall, the findings demonstrate that earned income inequality among older workers cannot be understood solely through wage dispersion or labour supply differences but requires explicit consideration of the interaction between them.