NABO Economic Trends & Issues (Issue No. 83)
Published on 24 September 2019
Published by Macro-Economic Analysis Division of the Economic Analysis Bureau
I. Economic Trends
Recently, the Korean economy has continued to suffer from an overall slump, even though the number of employed increased by a higher rate than the previous year. Exports dropped by a significant rate, while domestic demand decreased in terms of retail sales mainly of durable goods, with continuously low figures in plant and equipment investment and construction investment. Consumer prices in August increased by 0.0% (YoY, monthly) as agricultural, livestock and fisheries prices dropped significantly and the prices of petroleum-related products maintained a declining trend, reaching a record low increase rate. Meanwhile, increased economic uncertainties at home and abroad have led to a sudden increase in the won-to-dollar exchange rate and a record low treasury bond yield.
Ⅱ. The Impact of Manufacturing Sector-Specific Characteristics on the Employment Increase Rate
New employment creation appears to be very low in the Korean employment market as it exhibits a record high number of unemployed people, a rapid decline in employment elasticity and, in particular, the declining rate of contribution to employment by the manufacturing sector. In this regard, an analysis of the degree of impact on the employment increase rate was conducted by applying latent growth modeling and designating variables that have a strong influence on the employment market. As a result, within the manufacturing industry, sectors in which large conglomerates have a high market share exhibited a larger scale of employment as well as high growth potential in terms of employment. On the other hand, an analysis based on the number of companies revealed that sectors with a high rate of participation by large conglomerates actually witness a low increase rate in employment numbers. An impact analysis according to the types of employment revealed that a higher weight of regular employees can have a positive effect on employment growth in the long term. Such a result implies that policies aimed at enhancing employment security may also lead to a desirable effect on employment growth.
Ⅲ. Economic Impact of the Demographic Changes Following the outstanding Population Projections
According to the Outstanding Population Projections which incorporated the recent super-low birth rate, the Korean population will peak in 2028 and fall to 40.29 million by 2065, declining by 6.3% from the population projection in 2016. An analysis of the economic impact of the demographic changes via the Overlapping Generations Model (OLG) concluded that the GDP in 2065 would drop by 5.7%, compared to the point when the 2016 estimated scenario of the population median is realized. Furthermore, even in terms of an optimistic population forecast in which the birth rate increases up to 1.45 babies, the GDP increase rate in 2065 remained at 1.1% compared to the estimated scenario of the population median in 2016, implying that the currently low birth rate posits a negative impact on economic growth in the long term. Since it is difficult to improve the low birth rate phenomenon in the short term, measures to boost economic growth need to be comprehensively explored when establishing policies to tackle the issue.