Bank of Korea: "Last Year's Unemployment Rate Increase Mostly Due to Trendual Rise Rather Than COVID-19"

Bank of Korea Survey and Statistics Monthly Report
Decomposition of Unemployment Rate through Analysis of Labor Mobility between Employment States

[Asia Economy Reporter Kim Eunbyeol] Although the unemployment rate increased last year due to the impact of COVID-19, an analysis revealed that this was largely influenced by the trend of rising unemployment rates since the financial crisis, rather than COVID-19 itself.

On the 2nd, the Bank of Korea stated in the 'Monthly Statistical Bulletin - Decomposition of Unemployment Rate through Analysis of Labor Mobility between Employment States' that "Of the average unemployment rate of 4.0% in 2020, the trend component was 3.9%," and added, "The recent high level of unemployment rate is analyzed to be significantly influenced not only by cyclical factors caused by COVID-19 but also by the trend increase in unemployment rates continuing since 2005."

Last year's trend unemployment rate (3.9%) was found to be 0.5 percentage points and 0.3 percentage points higher than the trend unemployment rates during previous high unemployment periods in 2005 and 2010, respectively.

The cyclical component of the unemployment rate also rose sharply compared to 2019, approaching levels seen during past economic recessions. For the entire year of 2020, it recorded 0.1%, the same as in 2010 right after the financial crisis, and on a quarterly basis, the fourth quarter of last year recorded 0.4%, the highest since the first quarter of 2010 (0.6%), showing a level similar to that of 2005.

The Bank of Korea analyzed that the trend increase in Korea's unemployment rate since the financial crisis is mainly due to a continuous decrease in labor movement into employment status rather than an influx into unemployment status. In other words, the trend of transitions from unemployment to employment or from non-economic activity to employment has significantly declined since the financial crisis.

Background factors include weakened job creation capacity due to industrial structural changes such as automation, a decrease in new startups caused by increased economic uncertainty, prolonged job-seeking activities among the youth due to higher education levels, and increased labor supply due to expanded female economic participation.

The correlation between cyclical fluctuations in the unemployment rate and economic cycles has also significantly weakened. Since the financial crisis, accelerated offshore relocation of labor-intensive sectors, manufacturing automation, and rigid labor markets have influenced the unemployment rate to stagnate or decline regardless of economic recessions.

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