NABO Economic and Industry Trends & Issues (No. 22)
Published on 27 October 2021
Published by Economic Analysis Department
I. Economic and Industry Trends
The Korean economy has recently been exhibiting a production and consumption decrease with the effect of the upswing of COVID-19, leading to a slowdown in the economic recovery. All industry production in August decreased MoM mainly in terms of industrial production and the service industry, with figures declining by 0.2% from –0.6% in July; whereas retail sales in August dropped by 0.8%, recording a wider decline than in July (-0.5%), due to an increased number of confirmed COVID-19 cases and reinforced social distancing measures. Meanwhile, the job market in September staged a recovery amidst the sluggish face-to-face service sector with a total of 671 thousand people finding new jobs, along with continued strong exports. Consumer prices in September increased by 2.5% YoY, marking a jump of around 2.5% for six consecutive months since April. The Korean financial market in September exhibited increases in the won-to-dollar exchange rate and government bond interest rates as well as a decrease in stock prices due to factors such as a rebalancing of overseas investors’ securities investment portfolio, global inflationary unrest, and international interest rate hikes. The volatility rate of the nationwide housing sales price index and the jeonse/monthly rent price index in September increased by a smaller gap compared to the previous month.
Ⅱ. Pending Issues in the Economy and Industry
■ Background of the impact of the Chinese Government’s recent reinforcement of industry regulations
Starting with anti-trust regulation, the Chinese government has been expanding its regulation offensive against big tech industries, reigning in areas including the education, gaming and real estate industries. The recent reinforcement of China’s industry regulation framework stems from a policy highlighting the distributive function as the nation’s government attempts a policy shift towards “shared prosperity.”The purpose of China’s strengthening of industry regulations is to address structural issues to secure long-term growth drivers. Although never explicitly acknowledged, another objective is to alleviate social unrest and pursue national stability. While such reinforcement is expected to resolve China’s structural issues in the longer term, anti-market measures such as strengthened regulations are likely to have a negative impact on the real economy and capital market.
■ International comparison of ESG risk management competency of Korean companies
As corporate social responsibility is gaining more attention in the global capital market, an environment is being created in which a company’s ESG performance may affect its corporate value and global competitiveness. Korean companies’ competency in terms of ESG risk management appears to be weaker than their competitors based in major economies, and this gap may cause a weakening of Korean companies’ global competitiveness. Given that discussions are being held toward establishing a global standard for ESG assessment, Korea should actively engage in such talks so that Korean companies’ criteria are incorporated. In addition, the government could review ways to overhaul relevant regulations and market infrastructure as part of an effort to create an ESG ecosystem in Korea as well as encouraging the private sector to establish a set of market rules at their own discretion.
■ Analysis of the transformation in post-COVID-19 youth jobs
Youth employment which had been sluggish throughout 2020 due to the spread of the COVID-19 virus, started to improve beginning in January 2021, recently appearing to be positive in terms of quantitative indicators. However, taking a closer look at factors such as contract period, working hours, type of job and job satisfaction rate, the quality of youth jobs appears to have not yet recovered to 2019 levels, prior to the outbreak of COVID-19. Since job market conditions may advance slowly in terms of quality despite the quantitative improvement, the youth employment situation should be evaluated by examining both the quantitative and qualitative indicators.
■ Updates on the Carbon Border Adjustment Mechanism (CBAM) in the EU and US, and estimation of the carbon border tax burden
The EU introduced the Carbon Border Adjustment Mechanism as part of its “Fit fot 55” package, and the US is pursuing a scheme similar to the EU’s. The import costs incurred by the introduction of the EU and the US’ CBAM will ultimately be passed on to manufacturers in exporting countries. The primary steel manufacturing industry, primary non-steel manufacturing industry and non-metallic mineral product manufacturing industry are expected to face increasing burdens. An estimation of the burden of these three industries based on the price gap in emissions rights between EU-ETS, WCI (California) and Korea concluded that a total burden of 318 billion 490 million won will be incurred. Therefore, it is necessary to monitor policy trends such as the country-specific price of carbon emissions rights and carbon tax, as well as the EU’s progress on climate diplomacy.
Ⅲ. Economic and Industry Issues
■ Analysis of the changing trend of the total fertility rate in OECD countries
An analysis was conducted of the decisive factors determining the total fertility rate in 38 OECD countries from 1960 to 2020, from two different viewpoints: economic perspectives and policy perspectives. All 38 OECD countries show a decrease in total fertility rate when the per-capita GDP reaches a certain level, and a total fertility rate increase when that level is surpassed. This implies that policy factors in addition to economic factors affect the total fertility rate of OECD countries. Against this background, this report provides a panel regression model analysis based on data of the OECD countries from 1960-2020, of how family policies (such as family allowance, childcare leave, and cash support) implemented in each country affected the total fertility rate. The panel regression model analysis concluded the total fertility rate increased by 0.185 babies whenever the childcare leave pay increased by 1% against GDP; the total fertility rate increased by 0.043 babies if the total period of childcare leave was expanded by one year (52 weeks), indicating that family policies supporting a work-family balance had a positive effect on boosting the OECD countries’ total fertility rate. As part of measures to ensure a rebound in Korea’s total fertility rate, the government should consider improving the system geared towards promoting a work-family balance by lowering the opportunity costs of childbirth and childcare, such as by raising the childcare leave pay (including maternity leave) which provides an alternative to the cut in income caused by choosing to have children, as well as an extension of the childcare leave period.