The Bank of Korea projected that the number of employed people, reflecting demographic structure, will start to decline from the 2030s and will be only 90% of last year's figures by 2050. This is likely to act as downward pressure on the economy, reducing the gross domestic product (GDP) growth rate and increasing the dependency ratio.
On the 17th, the Bank of Korea published the BOK Issue Note titled 'Trends and Implications of Employment Numbers Considering Population and Labor Market Structures.' The report was prepared by Director Lee Yong-ho, Research Officer Jeong Gang-hee, and Head of Team Song Byeong-ho from the Bank's Employment Trends Team.
Employment is an important indicator for the Central Bank in deciding monetary policy. When employment conditions improve, consumption increases, leading to a virtuous cycle of better corporate performances. Consequently, major countries, including the Federal Reserve (Fed), have designated employment as a central bank responsibility, and the Bank of Korea also bases its interest rate decisions on employment indicators.
However, the scale of increase in the number of employed people, one of the employment indicators, has been steadily declining regardless of the recent economy. This is due to a decrease in population caused by low birth rates and aging. According to researchers, the recent scale of increase in the number of employed people is at the mid-to-late range of about 100,000 per year, which is below the long-term average (2011–2023, 340,000).
The researchers determined that to more accurately assess the employment situation, it is necessary to know the scale of employment that reflects structural changes and is economy-neutral. Based on the 'trend in the increase of the number of employed people' compiled by major Central Banks, they estimated the trend of employment.
The trend in the number of employed people refers to the number of employed individuals needed to maintain the natural unemployment rate. It is determined by factors such as the population aged 15 and over and the labor force participation rate. If the actual increase in the number of employed people exceeds the trend increase, it can be interpreted as favorable employment; if it falls below, it indicates sluggish employment.
According to researchers, the trend in the number of employed people in Korea decreased from an average of 400,000 from 2011 to 2015 to an average of 190,000 from 2016 to 2019. However, this increased after the COVID-19 pandemic, rising to an average of 320,000 from 2021 to 2024. Although demographic factors exerted downward pressure, increases in labor force participation rates among women and the elderly partially alleviated this pressure.
This year, the trend in the number of employed people is estimated to be in the late 100,000s, as the upward trend in labor force participation has slowed. In the first half of the year (January to May), the actual number of employed fell slightly short of the trend, and a slowdown in growth is also expected in the second half of the year. Based on this, researchers assessed this year's employment situation as somewhat sluggish.
In the long term, the trend in the number of employed people is expected to gradually slow down and turn negative (-) starting in 2030. This is because the population aged 15 and over is expected to start declining from 2033, and the labor force participation rate is anticipated to begin decreasing around 2030. Furthermore, the trend in the number of employed people will continue to decrease, with total employment expected to remain at 90% of last year's figures by around 2050.
The researchers explained, 'The negative transition to a decrease in the trend of employed people indicates that even when the economy continues to grow at a potential growth rate, the actual number of employed people can decline.'
The researchers warned that if the trend in the number of employed people decreases, our economy may face considerable expenses. First, the pressure of slowing GDP growth is expected to expand. The reduction in the number of employed people indicates a decrease in labor input, one of the production factors. This is likely to also lower the per capita GDP growth rate, which is a measure of individual welfare.
On the other hand, the burden of pension and medical expenses will increase. If aging progresses rapidly, the proportion of the elderly, who have lower levels of labor participation, will increase. According to the researchers' estimates, assuming other conditions remain constant, pension and medical expenditure due to aging and reduced economic activity is expected to expand from about 10% of the current GDP in 2025 to about 20% in 2050.
However, if structural reforms accompany the changes, it may delay the timing of the slowdown in the number of employed. The researchers conducted a scenario analysis, which showed that if the labor force participation rate rises by 4 percentage points by 2050 compared to the assumptions in this analysis, the slowdown in employment would be postponed by about five years compared to the baseline scenario. By around 2050, the number of employed people could increase to about 95% of last year's figures.
The researchers stated, 'To mitigate the negative impacts of the slowdown in the trend of employed people caused by population decline and aging, productivity and labor force participation must be enhanced through structural reforms throughout the economy.' They emphasized the need to promote efforts to increase the birth rate and to explore ways to utilize foreign workers to fill labor gaps.