NABO Industry Trends and Issues (No. 6)
I. Household income, real estate market, financial and commodities market trends
(Household Income Trends) In the fourth quarter of 2017, the average monthly (nominal) income per household increased (by 3.1%) YoY as the current income from earned income increased by 3.4% YoY, and the income quintile share ratio was 4.61, having improved by 0.02 YoY for the first time in eight quarters. In terms of the age of the head of household, the income increase rates of those in their 50s and 30s were relatively higher (6.4% and 5.4%, respectively), and the earned income increase rate in both age groups were relatively high.
(Real Estate Market Trends) Although the increase rate of housing prices in Seoul (3.6%) and Sejong City (4.3%) remained high despite new real estate regulations, prices in the regions of Chungcheong and Gyeongsang continued to drop, widening the regional price gap. The volume of housing transactions decreased in the Seoul Capital Area and Busan, resulting in a decrease of approximately 106 thousand transactions compared to the previous year.
(Financial and Commodities Market Trends) Despite concerns about the acceleration of US interest rate hikes, risk indicators maintained a stable trend as interest rates increased, stock prices went through corrections and the foreign exchange market exhibited mixed performance.
II. Analysis of the population decrease phenomenon in rural medium-to-small sized cities and employment conditions
Out of the 100 rural medium-to-small sized cities (excluding the Seoul Capital Area and metropolitan cities) of which population as of 2017 was less than 200 thousand, 69 cities experienced a population decrease over the past five years, and their pace of aging is about 15 years ahead of the national average. The population changes in rural medium-to-small sized cities are highly correlated with the number of employed. Upon analyzing the residents in these cities according to the Statistics Korea Region-Specific Employment Survey (conducted in the first-half of 2017), compared to cities with growing populations, those in cities with declining populations have 1.1%p less chance for youth (age 15-34) employment, hourly wages are 2.1% lower on average, and 7.6% lower particularly for those working in the fields of manufacturing, mining and construction. This implies that region-specific employment conditions and industry structure changes need to be considered when developing population-related measures for rural medium-to-small sized cities.
III. Economic impact analysis on the declining birth rate
Provided that the total fertility rate (TFR) is above 1.2 children per woman since 2017, Korea Statistics forecasted that the total population will begin to decline from 2032 (estimation of population median). Since the 2017 TFR is tentatively estimated to be at 1.05 children per woman, however, the period of total population decline could begin at an earlier date. Therefore, a review was conducted on the economic impact of continued low birthrates. Upon analysis of the difference between a low-birth scenario of population decreases from 2028 and the base scenario of the estimated population median based on the General Equilibrium Overlapping Generations Model, in 2060, the Korean Gross Domestic Product falls by 3.3% and all major economic variables such as labor income, capital income, investment and export decline. In this respect, by making reference to strategies employed by OECD countries to overcome low birthrates, measures against a reduction of the economically active population should be developed, such as by maintaining total labor supply or enhancing labor productivity.