Aging and Economic Growth Potentials in Korea 2006. 3. 19 Nam, Sang-yirl Korea Institute for International Economic Policy Promoting the innovation of SMEs, SMEWG, Taipei, March 2005

Introduction □ Aging population is - one of the recent emerging topics in socio-economic area in Korea - attracting interests from various areas including (i) labor supply and employment (ii) human resource development (iii) productivity and economic growth (iv) tax and finance (v) public pension (vi) social and medical policies, etc. Promoting the innovation of SMEs, SMEWG, Taipei, March 2005

Trends of Population Structure □ Total population in Korea was 24,989 thousand in 1960. □ Population growth rate (annual) has rapidly decreased - from above 2% during 1960s - to less than 1% during 1990s and - about 0.6% in 2002. □ Life expectancy has increased rapidly and continuously - from 52.4 in 1960 - to 77.3 in 2002. Promoting the innovation of SMEs, SMEWG, Taipei, March 2005

Trends of Population Structure [Table 1] Total Population, Growth Rate and Life Expectancy Year\Population Population Life Expectancy (age) Number (1,000) Growth Rate (annual, %) 1960 1965 1970 1980 1990 2000 2002 24,989 28,373 31,435 37,407 42,869 47,275 47,640 - 2.54 1.93 1.56 0.98 0.89 0.63 52.4 60.1 63.2 66.3 71.3 76.1 77.3 Source: KNSO (Korea National Statistical Office), Major Statistics of Korean Economy, various years. Promoting the innovation of SMEs, SMEWG, Taipei, March 2005

Trends of Population Structure □ Age structure - population age 14- has rapidly decreased its share from 42.8% in 1960 to 20.6% in 2002. - in contrast, population age 15~64 has increased its share from 53.9% in 1960 to 71.5% in 2002. - at the same time, population age 65+ has rapidly increased its share from 3.4% in 1960 to 7.9% in 2002. Promoting the innovation of SMEs, SMEWG, Taipei, March 2005

Trends of Population Structure [Table 2] Population Share by Age Group (unit: percent) Year \Share Age Group 0-14 15-64 65+ 65-69 70-74 75-79 80+ 1960 1965 1970 1980 1990 2000 2002 42.8 43.3 42.1 33.8 25.8 21.6 20.6 53.9 53.3 54.6 62.3 69.2 71.2 71.5 3.4 3.3 3.9 5.0 7.1 7.9 1.5 1.4 1.7 2.1 2.9 3.2 1.0 0.9 1.1 1.9 2.2 0.5 0.6 1.3 0.3 0.4 1.2 Source: KNSO (Korea National Statistical Office), Major Statistics of Korean Economy, various years. Promoting the innovation of SMEs, SMEWG, Taipei, March 2005

Prospects of Aging Population □ Currently, total population in Korea is 48,294 thousand (in 2005) - expected to increase and reach a peak as 49,956 thousand in 2020. □ For age structure - Korea became an aging society (population age 65+ is between 7% and 14%) in 2000. - expected to be an aged society (population age 65+ is between 14% and 20%) in 2018 and - a super-aged society (population age 65+ is 20%+) in 2026. Promoting the innovation of SMEs, SMEWG, Taipei, March 2005

Prospects of Aging Population [Table 3] Elderly Dependency Ratio Year\Ratio Elderly Dependency Ratio Growth Rate (%) 1960 1965 1970 1980 1990 2000 2002 6.27 6.20 6.06 7.23 10.01 11.07 - -0.21 -0.39 0.86 2.59 4.39 4.78 Note: Elderly Dependency Ratio = (Population age 65+) / (Population age 15-64) *100 Source: KNSO (Korea National Statistical Office), Major Statistics of Korean Economy, various years. Promoting the innovation of SMEs, SMEWG, Taipei, March 2005

Prospects of Aging Population [Table 4] Trends and Prospects of Aged Population (unit: thousand) Population\Year 2000 (Aging) 2010 2018 (Aged) 2020 2026 (Super-aged) 2030 Total Population 47,008 49,220 49,934 49,956 49,771 49,329 Age 65+ Share (%) 3,395 7.2 5,354 10.9 7,162 14.3 7,821 15.7 10,357 20.8 11,899 24.1 Source: KNSO (Korea National Statistical Office), Future Population Projection Results, 2005. Promoting the innovation of SMEs, SMEWG, Taipei, March 2005

Prospects of Aging Population □ It will take about 18 years for Korea to shift from an aging society to an aged one. - furthermore, it is also expected to take only about 8 years for Korea to shift from an aged society to a super-aged one. □ Korea is experiencing much faster trends of aging than other developed countries. - the trends are expected to accelerate. Promoting the innovation of SMEs, SMEWG, Taipei, March 2005

Prospects of Aging Population [Table 5] Trends of Population Aging in Major Countries Country \Aging First Year of Reach Years to Shift Aging Society (A) Aged Society (B) Super-aged Society (C) From A to B B to C France Sweden Australia USA Canada Italy Japan Korea 1864 1887 1939 1942 1945 1927 1970 2000 1979 1972 2012 2014 2010 1988 1994 2018 2019 2011 2030 2024 2008 2006 2026 115 85 73 72 65 61 24 18 40 39 16 14 20 12 8 Source: KNSO (Korea National Statistical Office), Future Population Projection Results, 2005. United Nations, World Population Prospects, 1998. Promoting the innovation of SMEs, SMEWG, Taipei, March 2005

Prospects of Aging Population □ With the progress of aging - economic burdens will be increased with the decrease of production possible population (age group between 15 and 64) and - the increase of elderly dependency ratio* * elderly dependency ratio = (population age 65+) / (age 15-64) * 100 Promoting the innovation of SMEs, SMEWG, Taipei, March 2005

Prospects of Aging Population [Table 6] Elderly Dependency Ratio in Major Countries : Trends and Prospects Country \Year 1980 1990 2000 2010 2020 2030 2040 2050 Korea Japan USA France Italy Mexico 6.1 13.4 16.9 21.9 20.4 7.4 17.2 18.9 21.3 22.3 6.9 10.1 25.2 18.6 24.5 26.7 7.6 14.9 34.8 19.0 25.4 31.1 9.0 21.8 46.9 25.0 32.7 36.8 11.7 37.3 51.7 32.9 39.8 47.3 16.2 55.2 63.6 34.6 45.3 63.8 23.5 69.4 71.3 34.9 46.7 68.1 30.0 OECD 20.7 21.5 26.1 32.2 40.8 49.0 52.2 Source: KNSO (Korea National Statistical Office), Future Population Projection Results, 2005. OECD, Health Data, 2002. Promoting the innovation of SMEs, SMEWG, Taipei, March 2005

Researches on Population and Economic Growth □ Researches on the relationship between population and economic growth have moved their focus - from the changes in total population or growth rate - to those of population (age) structure. □ Recent researches also shifted - from partial equilibrium analyses, mostly based on growth accounting - to general equilibrium approaches, mostly based on computable general equilibrium (CGE) models. Promoting the innovation of SMEs, SMEWG, Taipei, March 2005

Researches on Population and Economic Growth □ CGE models are often utilized with their strong points by considering interactions between various economic subjects and factors in an economy. - even with their limits in terms of some strong assumptions and some parameters without sound bases. □ One of the general results from recent researches on aging and economic growth in Korea is - that potential economic growth rate will be decreased significantly because of aging population. Promoting the innovation of SMEs, SMEWG, Taipei, March 2005

Prospect of Aging Population and Economic Growth □ Potential economic growth rate is expected to decrease significantly in Korea due to its aging population. - Aging population is regarded as one of the major reasons affecting economic growth and, in some sense, aggravating socio-economic disparity. □ Some model analyses with population dynamics forecast that potential economic growth rate will be gradually but significantly decrease in Korea - from about 5%+ (annual) during 2000-2005 - to about 2% (annual average) during 2030-2050 - and up to 1% by 2050. Promoting the innovation of SMEs, SMEWG, Taipei, March 2005

Prospect of Aging Population and Economic Growth [Table 7] Potential Economic Growth Rate of Korea (unit: percent) Year 2004-2010 2011-2020 2021-2030 2031-2050 Growth Rate 4.5-5.2 3.8-4.1 2.7-3.1 1.4-2.3 Sources: Korea Development Institute, National Pension Development Committee. Promoting the innovation of SMEs, SMEWG, Taipei, March 2005

Policy Responses to Aging Population □ As policy responses to the expected unfavorable trends due to aging population, some researches often recommend policy measures, for example, - not just simple increase in labor supply such as inducing more foreign workers, increasing economic activity participation ratio or extending the age of retirement - but increasing investment of human capital development and ultimately enhancing productivity growth rate. Promoting the innovation of SMEs, SMEWG, Taipei, March 2005

Policy Responses to Aging Population □ Aging population is one of the important socio-economic structural changes in Korea. - we cannot overemphasize balanced approaches considering the importance of aging population in the midst of overall structural changes - including in international trade and investment (globalization), industrial structure, the role of gender and other socio-economic behavior and structure (disparity). Promoting the innovation of SMEs, SMEWG, Taipei, March 2005

Thank You for Your Attention! synam@kiep.go.kr Korea Institute for International Economic Policy (KIEP)