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Study traces drop in GDP as population of Korea ages

Apr 24,2017
A study released Sunday showed that a 0.1 percentage point drop in the working age population due to Korea’s low birth rate and aging society will lead to an average lowering of the country’s GDP by 0.3 percent.

The Korea Institute for Industrial Economics & Trade studied the relationship between the aging society, GDP and productivity and found that the 0.1 percentage point drop in the working age population, or people age 15 to 64, lowers investments made in the country by 0.96 percent.

“The fall in the number of working age people weakens various economic factors such as investments, the labor market and productivity,” said Kim Won-kyu, a senior researcher at KIET. “This will become a negative factor or limit the country’s economy from growing. And one of the biggest concerns is that the decline in the working age population is faster than in other major countries.”

The research shows that the fall in GDP due to the decline in the working age population is becoming bigger as time goes on. Kim said a 1 percentage point drop in the working age population lowered the country’s GDP by 0.2 percent from 2006 to 2011, which rose to 0.4 percent from 2012 to 2016.

According to Statistics Korea, Korea’s working age population accounted for 73 percent of the total population as of 2015. That was higher than 64.1 percent for the whole world and 66 percent for the OECD. However, Korea’s figure will drop to 63.1 percent in 2030, lower than the world’s 63.4 percent. By 2060, it is expected to fall to 49.7 percent, which will be even lower than Japan’s 50.7 percent. In 2060, the OECD’s figure will be 56.1 percent.

“Demographic changes will be a big factor for the country’s economy and the government needs to come up with plans to deal with this,” said Kim. “Policy changes that will help companies increase their productivity are essential. Additionally, the government needs to make policy changes to reduce the negative impacts coming from the low birth rate and aging society such as fixing current healthcare, labor and tax systems.”

Kim suggested that the government expand investments in research and development and give tax benefits for such projects in the private sector.

The study also found a rising number of senior citizens working in the country causes a negative impact on total factor productivity.

BY KIM YOUNG-NAM [kim.youngnam@joongang.co.kr]