2 조 손동국 윤병웅 최준표 박혜원 배민주 오유선 OECD Economics Surveys, 2012 Chapter 1

INDEX Sustaining Korea’s convergence to the highest-income countries I.Introduction II.Korea’s long-run growth potential III.Labour market reforms to boost employment and productivity IV.Tax policies to promote employment and growth V.Policies to improve educational outcomes VI.Increasing the role of the education system in innovation VII.Promoting the development of the service sector VIII.Conclusion

Introduction Korea’s per capita income is converging to the most advanced countries

Introduction Population ageing in Korea will be the fastest in the OECD area

Introduction Population ageing in Korea will be the fastest in the OECD area

Sustaining Korea’s convergence to the highest-income countries 01 Korea’s long-run growth potential

Korea’s long-run growth potential The fall in Korea’s potential growth deceleration of both productivity deceleration of labour inputs

Korea’s long-run growth potential Annual average percentage rate Korea’s potential growth prospects

Korea’s long-run growth potential Labour market dualism in Korea Employed persons by status

Korea’s long-run growth potential ⊙ Non-regular workers include temporary, part-time and atypical workers, such as temporary agency workers. ⊙ Non-regular workers account for one-third of employees. ⊙ Firms hire non-regular workers to reduce labour costs and to increase employment flexibility.

Sustaining Korea’s convergence to the highest-income countries 02 Labour market reforms to boost employment and productivity

Labour market reforms to boost employment and productivity Rapid population ageing in Korea & the decline of the labour force NO!!!!!

Labour market reforms to boost employment and productivity International comparison of employment rates As a per cent of the working-age population in 2010

Labour market reforms to boost employment and productivity Changes in labour force participation by age and gender

Promoting continuous employment of older workers Wage profile in Korea

Second Basic Employment Promotion Plan ( ) for the Aged Strengthening support Increasing subsidies Strengthening skills Expanding opportunities Promoting the development

Promoting continuous employment of older workers Employment rates of younger and older workers Percentage of year-olds and year-olds in employment in 2010 OECD countries are positively correlated and statistically significant

Sustaining Korea’s convergence to the highest-income countries 03 Tax policies to promote employment and grow

Tax policies to promote employment and growth Taxes have an important impact on labour force participation The low tax burden in Korea Pro-growth tax policy calls for limiting any increase in the tax wedge on labour income

Tax policies to promote employment and growth Value-added taxes in OECD countries Korea’s VAT rate is currently 10%, far below the OECD average of 18%

Sustaining Korea’s convergence to the highest-income countries 04 Policies to improve educational outcomes

Policies to improve educational outcomes The rapid expansion of educational attainment in Korea Korea has consistently ranked near the top in the OECD in the PISA

Policies to improve educational outcomes Upgrade the quality of early childhood education and care Spending per student on pre-primary education is low in Korea 1/3 below the OECD average in 2008

Policies to improve educational outcomes Upgrade the quality of early childhood education and care A range of policies would help improve the quality of ECEC A.New primary schools to include kindergartens B.Progressively harmonise programmes for younger children C.Needed to upgrade the quality of childcare D.Enhancing transparency about quality E.Higher quality is to raise the qualifications F.The fee ceilings are problematic

Policies to improve educational outcomes Additional Policies Improve the quality of primary and secondary schools through greater autonomy and diversity Autonomy and accountability Expanding school choice Improve the quality of secondary schools through greater diversity Upgrade the tertiary sector

Sustaining Korea’s convergence to the highest-income countries 05 Increasing the role of the education system in innovation

Increasing the role of the education system in innovation Flows of R&D funds in 2009

Increasing the role of the education system in innovation R&D expenditure by performing sector As a per cent of gross domestic expenditure on R&D in 2009 or latest year available

Sustaining Korea’s convergence to the highest-income countries 06 Promoting the development of the service sector

Promoting the development of the service sector Korea’s service sector is relatively small and has low productivity the second lowest in the OECD area below the OECD average

Promoting the development of the service sector The government is making efforts to bridge the productivity gap between manufacturing and services Expanding the number of service businesses that receive tax benefits Removing entry barriers Stimulate R&D investment by tax deduction

Promoting the development of the service sector Policies to strengthen competition in services Eliminating domestic entry barriers Accelerating regulatory reform Upgrading competition policy Reducing barriers to trade and inflows of FDI. - financial penalty should be risen - The investigative powers of the Korea Fair Trade Commission, need to be expanded - Foreign ownership ceilings in key services, and liberalising product market regulations.

Promoting the development of the service sector To prevent widespread bankruptcies and minimize systemic risk, the government further increased assistance to SMEs Sharply raising guarantees by public financial institutions for lending Advising banks to automaticall y roll over loans Creating two initiatives to aid Doubling government spending to assist To SMEs

Sustaining Korea’s convergence to the highest-income countries 07 Conclusion

Sustaining Korea’s convergence to the highest-income countries Summary of recommendations to sustain Korea’s convergence to the highest-income countries Encouraging labour market participation, particularly of women, the elderly and youth Tax reform to foster employment and growth Improving the education system to promote productivity growth Early childhood education and care Primary and secondary schools Tertiary education Enhance the role of the education system in innovation Raising productivity in the service sector

OECD Economics Surveys, 2012 Chapter. 1 The End

OECD Economics Surveys, 2012 Chapter. 1 Q & A