By Kim Tong-hyung
Korea is moving toward an aged society at the fastest pace in the world with the average age of workers in the country spiking, according to a global bank, Tuesday.
In its latest report on the Korean economy, The Royal Bank of Scotland (RBS) issued an alert on Korea’s increasingly top-heavy population structure and its potential as a growth buster, predicting that its working-age population will enter a lengthy period of contraction starting in 2016.
The average age of Korean workers is expected to be 50 by 2045 when it will be the highest in the world. Potential growth will decline from 4.2 percent in 2011 to 2.5 percent in 2050, when the average worker will be supporting 1.65 pensioners.
The demographic shift will have significant impact on the country’s growth, fiscal spending and private savings levels, RBS predicted.
``The average age of Korean workers has passed that of American workers and will likely surpass the level of European countries in 2020. The data showed that our working population will decline by 1.2 percent every year until 2025, a point at which the decline will accelerate to an annual 2 percent until 2050,’’ said an official from the Korea Center for International Finance (KCIF), which analyzed the RBS study.
Government officials are concerned that the shrinking working-age population and longer life expectancies will combine to pose a considerable challenge for Korea’s long-term economic future.
As with many other countries, Korea expects to see the retiring proportion of its population balloon in the coming years. This is feared to consequently escalate pressures on the country’s fiscal position as more retirees collect pensions and medical benefits to be shouldered by a shrinking number of taxpayers.
In recent years, government officials here have worked hard to introduce family-friendly policies, such as expanding tax benefits, providing longer maternity leave and establishing more day-care centers for children of working mothers. But the effects of such changes have been subdued, due in part to a large number of companies being reluctant to make significant changes to their working environment.
The country already appears to be struggling to provide the resources to care for people after retirement. Official figures show that economic activity among people in their 50s and 60s are nearing all-time highs as older workers desperately cling to their office desks as they don’t have enough money saved up to retire.
Korea tops all the developed Organization for Economic Cooperation and Development (OECD) in poverty among elderly citizens, which was at 45.1 percent in 2010, more than triple the OECD average of 13.3 percent and roughly double the 20-something percent rates of Japan and the U.S.
Despite the difficult conditions, RBS downplayed the possibility that Korea would take a Japan-like dive into deflation. Korea’s relatively small government sector and lean entitlement programs suggest that the fiscal pressures will be manageable.
Savings will fall sharply as families look after their elders. However, it’s unlikely that asset prices will fall dramatically along with savings, according to RBS.
RBS believes that the country's current account surplus will remain relatively unchanged until around 2018 when the decline will start to be noticeable. The balance could fall into negative territory in 2034, with the deficit rising to 4 percent of the GDP in 2050.