NABO Economic Trends & Issues (Issue No. 60)
I. Economic Trends
The Korean economy has recently been showing a continued recovery led by exports, but spillover effects on domestic demand remain meager. Exports in September reached a record high in terms of monthly performance for the first time since the related statistics were recorded, spearheading the economic recovery. Nevertheless, economic indicators for domestic demand such as retail sales volume, plant and equipment investment and value of construction completed showed weak performance. In September, consumer prices increased 2.1% yoy as agricultural, livestock and fisheries product prices stabilized. Despite the rise in geopolitical tensions due to the North Korean nuclear test, the financial markets appeared to maintain stability.
Ⅱ. The Effect of Reduced Working Hours on Employment, Wages and Labor Productivity
The idea that reducing working hours can create jobs and improve the quality of life of employees has gained attention as a potential policy measure after the economy underwent both the Asian financial crisis and the global financial crisis. An economic impact analysis on reduced working hours revealed that while it may boost the employment of wage and salary workers and improve labor productivity in the long-term, its effect on increasing employment in the near-term may not be significant.
Ⅲ. Analysis of Propensity to Consume Across Income Groups
The government recently conducted an analysis of the propensity to consume across income groups in order to identify the ideal beneficiaries to maximize policy effectiveness should it implement a policy to expand private consumption through measures such as enhanced welfare and income. As a result, lower household incomes had a higher average and marginal propensity to consume. The low-income class had high marginal propensity to consume in terms of both current and non-current income. Therefore, focusing on the low-income class which has a higher marginal propensity to consume household income is likely to have a significant effect on boosting household consumption.
Ⅳ. The Cause and Implications of Recent Changes in Terms of Trade
The terms of trade (the ratio of unit import price ratio against unit export price ratio), which shows the price competitiveness of export goods, has shifted from a downward to horizontal trend. According to analyses, this is due to the price decline of major export goods such as electronic and electric equipment, stabilization of oil prices, the diversification and value-added nature of export goods as well as a diversification of importing countries. In order to improve the terms of trade in the future, it appears to be necessary to diversify and add value to the export goods by identifying new growth drivers and conducting R&D, while diversifying the list of importing countries mainly in terms of crude oil and commodities, which make up much of Korea’s imports.