Youth unemployment, aging demographics weigh down Korea

The Korean economy is facing pressure from all sides that will make it harder to sustain growth amid high youth unemployment, rapidly changing demographics and slow manufacturing growth.

With cash-strapped companies in conventional industries expected to go through restructuring soon, more people of all ages will be out of jobs and face difficulties in finding work in a slow market.

This will increase Korea’s unemployment rate, while growing costs for restructuring and welfare will add burden to fiscal spending as the country will have to finance them with debts to maintain its socioeconomic well-being.

With a double-digit growth for the past three straight months, Korea’s youth unemployment rate hit a record of 10.9 percent in April this year, up from 10.2 percent a year ago.

Despite March and April being the months of corporate recruitment season, the jobless rate increased last month, the Finance Ministry and the Labor Ministry said in a press statement. The overall youth employment rate increased 0.7 percentage points to 41.8 percent in the same period on the back of increased recruitment in the services industry on improved consumer sentiment, the ministries noted.

The general election day on April 13 and low employment in the manufacturing sector driven by slow exports led to the increase in youth joblessness, they added. Manufacturers were only able to hire below 100,000 people for 23 consecutive months.

When taking those looking for jobs while working part-time or studying for corporate entrance and state exams into account, the youth unemployment rate would be even higher at over 11 percent.

“There was a slowdown in recruitment in the manufacturing industry, and we need to see how restructuring in the shipping and shipbuilding sector will affect jobs in the latter half of this year,” said Sim Won-bo, head of Statistics Korea’s employment statistics division.

Another internal factor that is weighing down the prospects of Asia’s fourth-largest economy is the rapidly aging population, which will not only severely affect productivity but also the country’s finances.

Standard & Poor’s said in a report that Korea will see the fastest aging population growth among 34 advanced economies, with the dependency ratio measuring the number of elders in proportion to the working-age population to reach 65.8 percent by 2050. Korea’s 2050 old-age dependency ratio, which currently stands at 18 percent, will be slightly lower than Japan’s 70.9 percent.

This is expected to further increase welfare spending from about 8 percent of the country’s gross domestic product to some 18 percent by 2050, well above the average of 17 percent worldwide. Advanced economies, overall, will see an increase of 3.4 percentage points in financing welfare for elders in the same period.

S&P warned that without a proper policy response to the aging population, Korea is likely to see its sovereign rating downgraded from AA minus to BBB in 2050.

The government had indicated that it will have to be “more fiscally prudent and responsible” as its 2060 outlook report pointed out that the country’s debt-to-GDP ratio will grow to 90 percent from 40 percent should it continue its low growth with increasing welfare spending.

By Park Hyong-ki (hkp@heraldcorp.com)