NABO Industry Trends and Issues (No. 16)
Issued on 28 January 2018
Published by Industry & Employment Analysis Division of the Economic Analysis Bureau
I. Industry, Trade, Industrial Loans and Energy Trends
(Industry and Trade) Production in the manufacturing sector in November decreased by –1.9% (MoM) and increased by 0.1% (YoY). In December, total exports and exports of the top 11 industries respectively dropped by –1.2% and –1.0% (YoY).
(Industrial Loans) The volume of industrial loans in the third quarter of 2018 was 1,107 trillion won, 6.8% higher than the same period of the previous year due to increased loans in major sectors such as the services sector. In terms of industry sectors, industrial loans increased by 3.4% in the manufacturing sector, 9.3% in the services sector, 0.8% in the construction sector and 4.7% in other sectors.
(Energy) The primary energy supply in the third quarter of 2018 increased by 2.1% (YoY), while gas and renewable energy supplies respectively increased by 9.9% and 12.0%.
Ⅱ. Impact Analysis of the Service Sector’s Increasing Representation in the Industry Structure on Income Distribution
Since the 1990s, the services sector has been rapidly gaining significance in Korean industry as the importance of the service industry has been growing in relation to the national economy, while the issue of income disparity has become a significant factor on the household front. An analysis of the relation between the increase of the services sectors in terms of industry structure and income distribution between 1991 and 2016 among OECD member states revealed that industry structures in which the importance of the services sectors and the number of self-employed are higher have greater income imbalance, whereas increased spending on social welfare leads to a smaller income disparity. Korea also exhibits a wide gap between the labor productivity of various service industries as well as a higher proportion of non-wage workers in the services sector compared to the manufacturing sector. Therefore, measures are required to improve income distribution such as increasing the labor productivity of the overall services sector, narrowing the labor productivity gap in the services sector, increasing productivity through economies of scale regarding traditionally self-run businesses as well as increasing social welfare spending.
Ⅲ. Characteristics and Implications of Korean Annuity Schemes
Annuities gain attention in that they help increase household assets in preparation for post-retirement. However, a systematic analysis is necessary regarding the recently declining number of new investors and low retention rate. As for the characteristics of Korean annuity schemes, muli-layered annuity schemes are targeted mainly at the economically active population while individuals with lower incomes tend to have low enrollment rates in annuity schemes. Also, investors are required to observe a multitude of requirements imposed by annuity schemes such as making contributions for at least 5 years or 10 years as well as payment conditions, and are subject to a penalty in the form of a reduced principal should they opt for an early payout. Another problem is that while more than 60% of assets are invested in principal- and interest-guaranteed products, the average annual return of some products is lower than that of time-deposits (1.65%). Therefore, with respect to the economically inactive population and low-income group, it is necessary to review options such as the strengthening pre-enrollment advisory notices, broadening the disclosure of compared information and development of optimal portfolios for individual investors regarding the improvement of pension and annuity systems, contribution suspensions, early withdrawals and collateral loans.