"Economic Growth Rate Drops by 1%p, Employment Decreases by 451,000: "

Impact of 1.0%p Growth Rate Increase on Unemployment Rate Reduction, 2008 -0.07%p → 2019 -0.23%p
Unemployment Rate Increase During Recession Exceeds Decrease During Economic Growth by Over Twice
"Must Fully Prevent Erosion of Production Base and Avoid Job Disaster Through Employment Flexibility"

[Asia Economy Reporter Kim Hyewon] A study has found that if the economic growth rate falls by 1 percentage point, the number of employed people decreases by 451,000. In particular, during an economic recession, the increase in the unemployment rate is more than twice the decrease in the unemployment rate during an economic upswing.

Since the global financial crisis, the impact of economic growth on employment has been increasing, and there is also a call to make every effort to prevent the erosion of the production base so that the decline in economic growth caused by the COVID-19 pandemic does not lead to an employment shock.

The Korea Economic Research Institute (KERI) announced this on the 28th through its analysis titled "Impact of Growth Contraction Due to COVID-19 on Employment and Implications." According to KERI's analysis, if the economic growth rate falls by 1 percentage point, the number of employed people across all industries decreases by 451,000, and the number of wage earners decreases by 322,000. Wage earners refer only to salaried workers, while employed people include employers and self-employed individuals.

By industry, the number of employed people in the service sector decreased by 317,000, showing the greatest impact. Manufacturing saw a decrease of 80,000, and construction saw a decrease of 29,000. By detailed sector, wholesale and retail trade and commodity brokerage decreased by 59,000, transportation by 18,000, and food and accommodation by 25,000.

Since the global financial crisis, the impact of economic growth on employment has been increasing. The effect of a 1 percentage point increase in economic growth rate on reducing the unemployment rate peaked at -0.26 percentage points in 1999, after the Asian financial crisis, then declined to a low of -0.07 percentage points during the global financial crisis in 2008, before recovering. In the fourth quarter of last year, it rose to -0.23 percentage points.

Hong Sung-il, head of KERI's Economic Policy Team, analyzed, "This contradicts some views that underestimate the impact of growth on employment, often called 'jobless growth,' and shows that growth still has a significant effect on jobs."

An analysis of the impact of changes in Gross Domestic Product (GDP) on the unemployment rate by economic phase found that the increase in the unemployment rate during a recession is more than twice the decrease in the unemployment rate during an economic upswing. When the GDP cyclical value is 1 trillion won below zero, the threshold between economic upswing and downturn, the unemployment rate rises by 0.055 percentage points, whereas when it is 1 trillion won above zero, the unemployment rate falls by only 0.021 percentage points. This means that employment decreases more during recessions than it increases during economic expansions, suggesting that the recession caused by COVID-19 could lead to a major employment disaster and that recovery may not be easy, according to KERI.

KERI identified the erosion of the production base and job losses as the primary scars COVID-19 will leave on the Korean economy. Due to restrictions on face-to-face contact between people, simultaneous shocks to production and consumption shrink growth and destroy a significant number of jobs. Especially during recessions, the impact of growth on employment is asymmetrically larger than during expansions, so if the production base is eroded due to the COVID-19 crisis, a job disaster could occur, making urgent countermeasures necessary.

To prevent the erosion of the production base, KERI emphasized the need to improve corporate tax systems, such as corporate tax rates, to align with global trends, expand income and tax credits for research and development (R&D) and facility investments, and accelerate regulatory reforms to promote the emergence and development of non-face-to-face new industries. Additionally, to ensure rapid job recovery after COVID-19, it is necessary to increase employment flexibility by expanding dispatch and flexible working systems and temporarily easing the 52-hour workweek system.

Choo Kwang-ho, head of KERI's Economic Policy Office, said, "There are concerns that the decline in economic growth due to COVID-19 could lead to an employment disaster. To prevent this, it is necessary to take all possible measures to protect the production base, which is a prerequisite for employment, and to increase employment flexibility."

This content was produced with the assistance of AI translation services.