KDI 정책포럼 Population Aging and Economic Growth: Impact and Policy Implications
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- In an aging society there are 7 seniors out of every one hundred people, while an aged society has 14 and a super-aged society has 20. Korea is expected to enter a super-aged society in 2026. In fact, at the current pace of aging, Korea is on track to become a super-aged society 10 years faster than Japan. In terms of the working-age population, Korea’s 65-plus population will grow 1.7 times faster than Japan from 2015 to 2050. And the share of the senior population will equal that of the working population in 2050. So, what are the economic repercussions of a rapidly aging population? KDI conducted an analysis based on the labor force participation rate by age group in 2017, assuming 3 scenarios to estimate the economic growth rate for the coming three decades. Firstly, assuming that the labor force participation rate remains unchanged during the period, the economic growth rate will average 2.0% in the 2020s and 1.0% in the 2040s. Next, taking into account Korea’s lower employment rate for women than for men, estimates were made for the growth in the participation rate of women. For this, Sweden’s employment structure, which has a small gap between men and women, was applied. However, the results showed that the economic growth rate declined. Growth trends again failed to improve when the employment structure of Japan, who underwent population aging before Korea, was applied. The reason for the lack of improvement is because the number of retirees far outnumbers that of the working population. As a result, even a high participation rate is inadequate to offset the decline in the labor supply. Accordingly, unless significant improvements are made in productivity through measures to expand the substitute labor force, which includes women and young people, efforts to counter population aging will remain limited. Additionally, the results revealed that in order to ease the downtrend in economic growth, the labor participation rate of women must be at a similar level to Sweden and that of men to Japan’s while the senior participation rate is at Korea’s level. The involvement of the senior population in economic activities will not only ease the decline in economic growth but also reduce the dependency ratio, serving as an effective countermeasure to population aging. [Interview with the author] The most effective means in terms of responding to population aging is utilizing the senior labor force. And, there are many prerequisites for this, including overhauling the retirement age system and adjusting the wage system. In addition, we must move away from the social norms of perceiving the over 65s as dependents or surplus. A new life cycle must be established for the senior generation, and the population should be granted opportunities and roles to productively contribute to society. It is true that compared to the quantity, the quality of Korea’s senior labor market remains subpar. However, the baby boomers who will soon retire are far more educated than the preceding senior generation. As such, their employment and their productivity in the senior labor market is also expected to increase. In particular, policy efforts must be ramped up in terms of providing vocational training and lifelong education programs to assist those looking to change careers later in life.
■ Korea is aging at a faster pace than any other major country, and the negative impact on the economy is expected to be considerable.
- In thirty years, the old-age dependency ratio is projected to exceed 70% and GDP growth to mark around the 1% range. This would pose a tremendous threat to sustainability unless the economy makes significant improvements in productivity and the employment structure.
■ Korea’s population aging is proceeding at an unprecedentedly rapid pace while policy responses and institutional reforms fail to keep pace.
- Setbacks such as falling labor supply and growth seem to be unredeemable even if Korea’s labor force participation rate (by gender and age group) improves to the level of advanced countries.
- The labor supply policy to boost the economic participation of the working age population may work as a feasible response to the challenges of population aging to a certain extent. However, it is not enough to make a full recovery given the severe imbalance of Korea’s demographic profile.
■ Policy responses should be focused on reversing the quantitative decline in the labor supply by promoting the participation of the senior labor force while pushing towards the ultimate goal of human capital advancement and higher labor force productivity.
- Senior labor force participation can be effective in easing not only the fall in economic growth but also the pressure from the rising dependency ratio.
- At the same time, concerted policy efforts should be made in enhancing the general environment including educational and vocational training programs that could upgrade the productivity of the senior population.
2. Korea’s Population Aging: Pace and Duration
3. Growth Projection with Intensifying Population Aging
4. Response: Utilizing the Senior Labor Force
5. Conclusion and Policy Implications
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