The Peninsula

Deepening Demographic Challenge Complicates Positive Economic Data

This briefing comes from Korea View, a weekly newsletter published by the Korea Economic Institute. Korea View aims to cover developments that reveal trends on the Korean Peninsula but receive little attention in the United States. If you would like to sign up, please find the online form here.

What Happened

• The unemployment rate fell to 3% in August and job creation was the largest in nearly 3 years.
• But 87% of the jobs created went to people over the age of 60.
• Meanwhile, South Korea’s Ministry of Finance announced plans to introduce the most expansionary budget since the 2008-2009 global financial crisis.

Implications: Although recent data showed that overall unemployment has fallen to the lowest point since 2013, the concentration of job growth among the elderly suggests that the South Korean society is straining to absorb the cost of demographic challenge. The presence of so many workers over the age of 60 seeking employment strongly indicates that existing social safety nets are insufficiently protecting the elderly.

This underlying demographic shift also carries risks for the Korean government’s long-term fiscal position. In response to issues like elderly poverty, the Finance Ministry allocated 13% of the proposed budget to bolstering the social safety net. This continues Korea’s rapid expansion of spending on welfare, which is growing almost 4 times faster than the average OECD rate. While many analysts continue to view South Korea’s fiscal position as robust, concerns about its long-term position will likely percolate as the rapid pace of the ageing raises costs on healthcare, etc.

Context: Elderly poverty is a significant concern. The average age of households in the bottom 20% of income earners is 63.4. Meanwhile, the share of the elderly as a total percentage of the population will continue to grow – which will also grow the government’s welfare obligations. Nearly 15% of South Koreans are 65 or over. This figure will exceed 20% in 2025.

Korea View was edited by Yong Kwon with the help of Soojin Hwang, Hyoshin Kim, and Rachel Kirsch.

Picture from user Bridget Coila in Flickr