The rapid aging of Korea’s population is an issue that demands urgent action. The Korea Development Institute therefore decided to conduct a nationwide study, titled Population Aging in Korea: Economic Impacts and Policy Issues, between 2003 and 2004. This report presents the first results of the study conducted in 2003.
The widespread economic implications of the aging of a population have had particularly pronounced correlations with certain types of economic and social systems. Previous attempts at reform failed to reconcile the interests of the different classes and demonstrated that poorly timed reform can worsen the effects of population aging and delay the process of social change. The gravity and rapid pace of population aging make it a challenging problem to tackle. However, establishing policy directions and accurately analyzing the issue in a timely manner can help mitigate the situation. This report is based on the results of an empirical, comprehensive study of the main issues surrounding the aging of the Korean population, taking into account the distinct characteristics of Korea’s socioeconomic systems and the complexity of the social impact of an aging population. The next report, which will be published in 2004, will focus on the policy issues that have been identified from the results (discussed in detail in a later section of this report).
Chapter 1. The Issues of an Aging Population” will categorize the main issues of population aging, discuss research tasks, and clearly outline the current status and direction of research.
Chapter 2. Prospects and Analysis of Population Aging” explains Korea’s rapidly aging population as a product of late industrialization and compressed economic development. This chapter also mentions the declining fertility rate in Korea and attributes the cause of delayed childbearing to the higher education levels attained by women. It discusses how the birth rate is expected to reach a historic low in the 2000s and show a slight increase thereafter, although the growth will not be sufficient to alleviate the aging problem in any significant way. Another factor of Korea’s aging population presented in this chapter is the massive layoffs of young people in the labor force following the 1997 Asian financial crisis. Policies aimed at increasing birth rates have shown little to no success worldwide, giving rise to suggestions that such policies would be better suited as family policies rather than population growth policies.
Chapter 3. The Macroeconomics of an Aging Population” analyzes the macroeconomic consequences of population aging. First, the dynamic simulation model of generational accounting created by Alan J. Auerbach and Laurence J. Kotlikoff is used to illustrate that the current trend of population aging will lead to a drop in the national savings rate, resulting in a low gross domestic product (GDP) per capita. Second, the empirical analyses based on the overlapping generations model of neoclassical growth theory as well as on the demographic change in endogenous growth models demonstrate that: (a) the rate of population aging, rather than the severity, is responsible for halting economic growth; (b) the shift in demographic change suggests that there are quality-quantity tradeoffs when it comes to bearing children in modern society; and (c) an aging population may not pose a direct threat to the economy as long as it is a product of industrialization. These conclusions imply that future policies should focus on improving a variety of existing systems that have the potential to compromise the understanding of economic forces, rather than on the aging population problem itself.
Chapter 4. Population Aging and Finance” discusses the impact of an aging population on financial supply and demand. The first section of the chapter hypothesizes that government expenditure determines government revenue, and analyzes how that revenue is affected by the aging of the population. Conducted under the assumption that Korea will eventually follow in the footsteps of other OECD countries, the analysis used panel data on 30 OECD countries collected between 1970 and 2001. The results suggest that population aging seems to reduce the tax burden at first, but later causes it to increase over time, and that this phenomenon is remarkably more common in super-aged societies. These findings show that devising a balanced expenditure plan is crucial to preventing extreme tax burden and deficit and mitigating the harmful effects of population aging on government finance. The second section lists several institutional reform goals designed to promote the longevity of the policy system and maintenance of budget balance—based on the financial prospects of the public pension, which is another government expenditure that is expected to increase significantly over time due to the demographic shift—and social insurance policies, including health insurance schemes.
Chapter 5. An Aging Population and the Financial Market” examines the three aspects of the financial market of an aging society, including the relationship between pension plans and the size of personal savings, trends in the demand for financial assets, and role of pension funds in the growth of the financial market. The first section of the chapter explores the correlation between pensions and the size of savings. It was found that, in Korea, expanding public pension schemes tends to reduce household savings, and that occupational pensions tend to have a more negative impact on private savings than do national pensions. If Korea switches from a partially funded to a pay-as-you-go pension scheme, the effect on household savings could be more pronounced. Policymakers therefore need to devise a plan for maintaining the current partially funded pension scheme. The second section of the chapter discusses the demographic structure of asset demand and how asset demand trends vary in an aging society. It contends that increasing the ratio of financial assets to total assets can help offset the ever-increasing effects of population aging, as it is predicted that both financial assets and total assets will grow until the 2030s. The third section examines the role of pension funds in a capital market, disputing the argument that pension funds necessarily induce economic growth. It also argues that, in order for pension funds to truly stimulate capital development, there needs to be a good governance structure to hold pension fund managers accountable and more regulations regarding competition in asset management. Infrastructure effort to improve the capital market’s efficiency is another requirement, based on the study on the current status of markets.
Chapter 6. Population Aging and the Job Market” focuses on the job market for the elderly. The first section explores the factors of change in the economic activities of the elderly in Korea. In the long term, it is estimated that elderly workers, particularly those with higher levels of education, will come to represent a significant portion of total elderly employment. Moreover, the economic activities of elderly men outside the agricultural sector in the last decade have been carried out mainly by wageworkers in their late 50s and early 60s, suggesting that the retirement age plays a significant role in determining the economic activity level of the elderly. The systemic influence of early retirement is thus expected to play an increasingly larger role in the job market for elderly workers. The second section identifies the long-term determinants of the labour market activity rates of the elderly, arguing that the surge of growth in elderly labor activity from the mid-1960s to 1997 can be attributed to the agricultural sector in rural areas. The section concludes that the future prospects of labor force participation by the elderly is becoming increasingly bleak, as the populations of rural and agrarian communities decline and that of the highly educated demographic with low labour activity increases.
Finally, Chapter 7. Summary and Policy Implications” summarizes the main arguments and policy implications discussed in this report.
인구구조 고령화의 경제적 영향과 대응과제 (1)(Population aging in Korea: economic impacts and policy issues)
|Series Title; No||정책포럼 / 2003-06|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < General
Social Development < Population
|Holding||KDI; KDI School|