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

2. 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

3. 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 % in 2002.
□ Life expectancy has increased rapidly and continuously
- from 52.4 in 1960
- to in 2002.
Promoting the innovation of SMEs, SMEWG, Taipei, March 2005

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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
- to about 2% (annual average) during
- and up to 1% by 2050.
Promoting the innovation of SMEs, SMEWG, Taipei, March 2005

17. Prospect of Aging Population and Economic Growth
[Table 7] Potential Economic Growth Rate of Korea
(unit: percent)
Year
Growth Rate
Sources: Korea Development Institute, National Pension Development Committee.
Promoting the innovation of SMEs, SMEWG, Taipei, March 2005

18. 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

19. 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

20. Thank You for Your Attention!
Korea Institute for
International Economic Policy (KIEP)