Employment Boom to Fade Next Year... Sharp Drop in Employment Elasticity

KCCI SGI, Recent Labor Market Feature: 'Employment Growth Exceeds Economic Growth'
Employment Increased by 1.04% per 1% Economic Growth This Year

[Asia Economy Reporter Jeong Dong-hoon] There is a forecast that the employment elasticity, which recorded an all-time high this year, will sharply decline next year. Employment elasticity is the value obtained by dividing the employment growth rate by the economic growth rate, and the higher the employment elasticity, the more the number of employed people has increased relative to economic growth.

The Korea Chamber of Commerce and Industry's SGI (Sustainable Growth Initiative) stated in its report "Recent Labor Market Status and Characteristics" on the 30th, "According to the Bank of Korea's (August) forecast, this year's economic growth rate is expected to be 2.6%, and the employment growth rate is predicted to be 2.7%." The report continued, "Based on the forecasts of economic growth rate and employment growth rate, the employment elasticity for this year is estimated to be 1.04 (meaning employment increased by 1.04% when GDP increased by 1%)," adding, "This figure is the highest since employment statistics began to be provided in 1963."

The report predicted that next year, the employment growth rate will remain at 0.5%, and employment elasticity will sharply fall to 0.24, which is a significant drop from this year's 1.04 and below the long-term average of 0.34.

Kim Cheon-gu, a research fellow at SGI of the Korea Chamber of Commerce and Industry, expressed concern, saying, "This year, employment recovery exceeding growth was observed due to increases in youth and elderly employment, expansion of jobs related to digital transformation, and a decrease in foreign workers entering the country. Next year, companies facing difficulties such as deteriorating profitability and tightening financial markets are likely to reduce hiring and adjust workforce structures, making it harder for job seekers to find employment."

Negative Aspects Persist Such as Recent Labor Market Job Mismatch, Increase in Fiscal-Supported Jobs, and Poor Recovery in Face-to-Face Service Industry

The report pointed out some negative aspects despite the recent favorable labor market, citing the "labor market mismatch triggered by COVID-19." SGI stated, "Jobs newly created mainly in the IT sector after the COVID shock require many skills such as software design and coding, which differ from the abilities possessed by existing employees," adding, "It is difficult to match the supply and demand of jobs in the industry with the current education system and the retraining system for existing employees."

Recently, the "expansion of fiscal-supported jobs" has also been a characteristic of the labor market. "The government has significantly expanded direct job projects supporting vulnerable groups in the labor market by injecting fiscal funds after the COVID-19 crisis," and "In fact, the proportion of public administration and health and welfare sectors, where fiscal-supported jobs are heavily distributed, increased by 1.5 percentage points from 12.5% before COVID (January 2020) to 14.0% as of September this year," the report said.

Meanwhile, the face-to-face service industry, which was severely impacted by COVID, has seen employment stagnation solidify as machines such as robots and kiosks replace existing jobs. SGI noted, "Currently, production in the face-to-face service industry exceeds pre-COVID levels by 12.9%, but the number of employed persons is 4.4% below," forecasting, "The gap between production and employment in the face-to-face service industry will continue and the disparity will gradually widen."

KCCI SGI Calls for Measures Such as 'Strengthening Employment Protection for Vulnerable Groups,' 'Expanding Private Sector Employment Creation,' and 'Training Talent Desired by Companies'

The report expressed concern, stating, "Next year, due to economic slowdown and base effects, the increase in employment is likely to slow down," and "If the labor market contracts in the short term, structural problems in the domestic labor market such as a decrease in the working-age population and aging of employed persons will also expand."

Kim Cheon-gu, a research fellow at KCCI SGI, said, "In the short term, we must actively respond to the contraction of the labor market next year, and in the long term, efforts to solve structural problems in the domestic labor market and to create jobs in fields where companies' labor demand is increasing must continue."

First, he mentioned strengthening employment protection for vulnerable groups. SGI stated, "It is necessary to provide employment support services by strengthening the linkage between direct job executing agencies and employment centers so that participants in the shrinking fiscal-supported job projects can smoothly transition to private sector jobs," and "For groups such as special-type workers, freelancers, and small-scale self-employed who frequently change jobs and need employment protection, opportunities for vocational competency development such as capability assessment, vocational training, job placement, and retraining support should be expanded."

They also called for expanding the private sector's employment creation capacity. The report said, "Employment creation tends to be high in young firms, but recent increased economic uncertainty and rising financing costs may shrink startup activities," adding, "To maintain private sector dynamism, programs supporting technology innovation startups like TIPS should be expanded, and technology exchange and market linkage between startups and large corporations should be promoted." TIPS is a system that selects startup teams with technology items leading the global market through private sector initiatives and intensively fosters promising future startups.

The report also raised the need for labor reform such as improving working hour systems to match changes in work styles. It stated, "As the economy advances in service and IT sectors, the meaning of time and space boundaries of work has weakened, and 'working hours = performance' no longer correlates," adding, "The uniform working hour regulation system should be transformed into an autonomous regulation system that expands the scope of labor-management autonomy while guaranteeing rest."

Emphasizing the training of talent desired by companies, SGI said, "After COVID, the 4th Industrial Revolution and digital transformation have accelerated, creating a gap between the talent companies want and the workforce universities produce," and "Career, education, and employment linkage projects in fields such as next-generation semiconductors, big data, bio-health, and future automobiles should be activated to increase the supply of talent matching corporate demand."

Finally, the report called for measures to maintain the productivity of the elderly. It stated, "Jobs that can utilize the learning ability and accumulated experience of the newly included elderly should be prepared, and education and training programs that can focus on those with a strong will for self-development should be developed in parallel," adding, "Considering the changing workforce structure, the wage system should be gradually reformed from seniority-based to job-based pay that compensates according to the nature and difficulty of the assigned tasks."

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