Fast-aging Korea losing vibrancy

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By Lee Kyung-min

Calls are mounting for a prompt overhaul of the National Pension Service (NPS) among other state-run social safety net programs, a discussion that can no longer be delayed in a fast-aging society where a fifth of the total populations of two out of five municipalities are aged 65 or older.

The need to advance the politically divisive, key voting issue is increasing, with Korea's working-age population on a rapid decline driven in large part by an ultra-low birthrate. This is the prime cause of a sharp fall in the country's potential growth rate on the fastest decline among OECD member nations.

Korea's fiscal soundness will come under threat sooner than expected, unless swift and drastic measures are implemented to address the survivability of organizations certain to report losses due to sagging overall labor productivity.

Further fanning the concerns are the country's militant unions in an extremely rigid labor market, the biggest and most-frequently cited risk factor deterring hefty, long-term foreign investments.

Potential growth rate, or potential GDP, is an estimate of the output that would have been produced by the economy without triggering inflation, as measured with labor and capital at their maximum sustainable rates.

Labor force participation, capital stock and total factor productivity are used to explain the year-on-year figure.

The Bank of Korea said in August that Korea's potential growth rate between 2021 and 2022 is likely to dip to 2 percent, down further from 2.2 percent between 2019 and 2020.

According to the OECD's long-term outlook, the figure will stand at 2.35 percent this year before diving to 0.92 percent in 2033. It will fall from 2047 to 2060, compared to the world average moving between 2.62 percent in 2021 and 1.47 percent in 2060.

The Korea Institute of Finance issued an even grimmer assessment, forecasting that the figure would fall to 0.56 percent by 2045. The figure is premised on a worst-case scenario defined by a steady decrease in labor and capital growth.

The neutral scenario, on the other hand, expects the figure to increase to the 1 percent range by 2030, and to keep growing at 0.6 percent, backed by capital growth large enoughto offset the rapid decline in the labor force.

However, even when Korea registers the highest capital growth among OECD members, the increase will be limited to the mid- or high-1 percent range in 2030.

“The vitality of the Korean economy will decrease, an inevitable outcome bogged down by labor force decreases in the era of a fast-aging society,” the KIF said.