By Choi Sung-jin
For Korea not to follow Japan's "two lost decades," the nation must hasten reform of its labor and financial markets, Kim Seong-tae, a fellow at the Korea Development Institute, says.
Kim made these and other points while presenting "preemptive structural reform" as a solution to prevent another economic crisis, at a workshop Friday.
The KDI researcher said Korea's demographic structure and its economic growth are following those of Japan, with a time lag of 20 years. In particular, population aging and a slowdown of growth are copycats of each other, he said.
"Japan's population began to decline starting in the 1990s, and Korea's did the same from the 2010s," said the researcher at the state think tank. "The supporting ratios of elderly citizens also show a similarly rising curve with 20 years of time difference between them. As actual life expectancy is longer than the estimation by Statistics Korea, the support ratios will rise more steeply."
Noting that the economic growth of the two countries is falling in similar ways, Kim cited "population aging" and "stagnant productivity" as reasons.
The growth rate of Japan's real gross domestic product fell from 3.9 percent in the 1980s to 1.7 percent in the '90s. That of labor input turned around from a 0.6 percent increase to a 0.3 percent decrease while productivity growth fell from 1.4 percent to 0.6 percent during the period.
Korea's potential growth rate was in the mid-4 percent range in the 2000s but was expected to drop to 1-2 percent after the 2020s. After 2026, in particular, labor input would reverse to negative growth and the productivity increase would remain at the 1 percent level.
"The slowing growth rates of labor and capital input are inevitable results of population aging and a maturing economy," Kim said. "To prevent the plunge of the real economic growth rate, however, the nation should try hard to enhance productivity while maintaining the inflation rate at 2-3 percent, too."
The KDI researcher said labor and financial market reform is inevitable to raise productivity.
"If Korea fails to rectify the dual and polarizing structure between regular and non-regular workers, as well as solve the problems of marginal companies and inefficient resource allocation by manufacturers, the nation cannot help but follow the prolonged slump of Japan," Kim said.
Stressing that Japan has aggravated part-time workers' problems by unduly enhancing the protection of full-timers, Korea needs to move toward breaking up excessive protection of regular employees, he said.
"Japan has lost the right timing for taking corrective steps by viewing its economy too optimistically, and aggravated its fiscal health because of deflationary policy and tax cuts," Kim said. "Korean policymakers should remember Tokyo has failed by conducting its monetary policy too passively and its fiscal policy too aggressively."
Korea must turn crisis into opportunity through preemptive structural reforms, he said in conclusion.
For Korea not to follow Japan's "two lost decades," the nation must hasten reform of its labor and financial markets, Kim Seong-tae, a fellow at the Korea Development Institute, says.
Kim made these and other points while presenting "preemptive structural reform" as a solution to prevent another economic crisis, at a workshop Friday.
The KDI researcher said Korea's demographic structure and its economic growth are following those of Japan, with a time lag of 20 years. In particular, population aging and a slowdown of growth are copycats of each other, he said.
"Japan's population began to decline starting in the 1990s, and Korea's did the same from the 2010s," said the researcher at the state think tank. "The supporting ratios of elderly citizens also show a similarly rising curve with 20 years of time difference between them. As actual life expectancy is longer than the estimation by Statistics Korea, the support ratios will rise more steeply."
Noting that the economic growth of the two countries is falling in similar ways, Kim cited "population aging" and "stagnant productivity" as reasons.
The growth rate of Japan's real gross domestic product fell from 3.9 percent in the 1980s to 1.7 percent in the '90s. That of labor input turned around from a 0.6 percent increase to a 0.3 percent decrease while productivity growth fell from 1.4 percent to 0.6 percent during the period.
Korea's potential growth rate was in the mid-4 percent range in the 2000s but was expected to drop to 1-2 percent after the 2020s. After 2026, in particular, labor input would reverse to negative growth and the productivity increase would remain at the 1 percent level.
"The slowing growth rates of labor and capital input are inevitable results of population aging and a maturing economy," Kim said. "To prevent the plunge of the real economic growth rate, however, the nation should try hard to enhance productivity while maintaining the inflation rate at 2-3 percent, too."
The KDI researcher said labor and financial market reform is inevitable to raise productivity.
"If Korea fails to rectify the dual and polarizing structure between regular and non-regular workers, as well as solve the problems of marginal companies and inefficient resource allocation by manufacturers, the nation cannot help but follow the prolonged slump of Japan," Kim said.
Stressing that Japan has aggravated part-time workers' problems by unduly enhancing the protection of full-timers, Korea needs to move toward breaking up excessive protection of regular employees, he said.
"Japan has lost the right timing for taking corrective steps by viewing its economy too optimistically, and aggravated its fiscal health because of deflationary policy and tax cuts," Kim said. "Korean policymakers should remember Tokyo has failed by conducting its monetary policy too passively and its fiscal policy too aggressively."
Korea must turn crisis into opportunity through preemptive structural reforms, he said in conclusion.
