Falling into the 'Swamp of Job Growth Without Growth'... Neglect Will Further Deteriorate Job Quality

Statistics Korea Announces August Employment Trends
Employment Rate Up 0.3%P, Unemployment Rate Down 0.1%P
Korea's Growth Rate Forecast at 1.4% This Year
Employment Rate Shows Strength with Less Impact from Advanced Industries
Issue Lies in Declining Potential Growth Rate... "Structural Reform Needed"

As the economic growth rate plummets, the employment rate is soaring to unprecedented heights, raising concerns that the Korean economy is falling into a quagmire of ‘employment without growth.’ The phenomenon, which is the exact opposite of the conventional wisdom that ‘low growth equals high unemployment,’ is analyzed to be influenced by industrial restructuring and demographic changes. There are worries that if the economy remains complacent with stable employment indicators without increasing quality jobs, the timing for structural reforms could be missed.

According to Statistics Korea on the 13th, the employment rate for those aged 15 and over in August was 63.1%, and the unemployment rate was 2.0%, marking the highest and lowest points respectively since statistics began, maintaining a seemingly very favorable condition. Statistics Korea evaluated, "Considering the high employment rate last year, maintaining a positive situation is not bad." Looking only at employment indicators, one might mistakenly think the Korean economy is sailing smoothly.

However, the economic growth rate has entered an unprecedented low-growth phase. The Ministry of Economy and Finance projected Korea’s gross domestic product (GDP) growth rate for this year at 1.4%. The International Monetary Fund (IMF) also lowered its forecast for Korea’s economic growth rate from 1.5% to 1.4% in its July ‘World Economic Outlook’ update. The IMF noted, "Risks such as real estate and a slowdown in China’s economic growth could act as downward pressure on Korea’s economic growth." The problem is that the export slump in the semiconductor and IT sectors, which were expected to drive economic recovery in the second half of this year, may continue into next year. Experts also analyze that the Korean economy is entering a typical ‘recession’ phase where both domestic demand and exports are simultaneously depressed due to high inflation and high interest rates.

The ‘unstable employment performance’ of rising employment rates despite falling growth rates may persist long-term. The low-growth, low-unemployment phenomenon contradicts traditional economic theory. Economists have long believed that low growth rates lead to higher unemployment rates. American economist Arthur Okun analyzed that when GDP grows by 2%, the unemployment rate falls by 1 percentage point. According to the so-called ‘Okun’s Law,’ unemployment continues to rise until the economy returns to a normal trajectory. Until the mid-2010s, global economic scholars and international organizations warned that preparations should be made for the upcoming low-growth, high-unemployment scenario.

The unexpected low-growth, low-unemployment phenomenon is influenced by the industrial structure. In the semiconductor industry, which largely determines Korea’s growth rate, the employment inducement coefficient is only about 2.09. The employment inducement coefficient refers to the number of jobs directly and indirectly created per 1 billion KRW of new investment. Compared to sectors like social welfare (28.84), agriculture, forestry, and fisheries (24.98), and accommodation and food services (19.33), the semiconductor industry’s impact on employment is minimal. This means that difficulties in the semiconductor industry do not necessarily increase unemployment. A Ministry of Economy and Finance official explained, "The current low-growth trend is due to the slump in advanced industries including the semiconductor sector," adding, "Advanced companies like Samsung Electronics do not suddenly cut employment drastically even if business becomes difficult, so while growth rates fall, unemployment indicators remain favorable."

The problem is that as the economy’s fundamental strength weakens, the quality of employment and potential growth rate may continuously decline. According to the Bank of Korea, Korea’s potential growth rate fell from 5.1% during 2001?2005 to 2.0% in 2021?2022, fifteen years later. The main causes identified were a decrease in the working-age population due to low birth rates and aging, along with a fundamental slowdown in productivity.

Recently, the increase in employment by industry has been led by the service and social welfare sectors. This is largely due to the recovery effect following the end of COVID-19. Last month, the number of employed persons in the service sector was 3,513,000, an increase of 217,000 (6.6%) compared to the same month last year. During the same period, the health and social welfare sector also increased by 138,000 (4.9%) to 2,924,000.

On the other hand, the number of employed persons in the manufacturing sector, a core of our economy, decreased by 69,000 last month, continuing a decline for eight consecutive months. Although employment among those aged 60 and over increased significantly, employment polarization is intensifying as the youth aged 15?29 decreased by 103,000. Seounju, Director of Social Statistics at Statistics Korea, said, "Employment rates in manufacturing and retail sectors continue to decline," adding, "There is no rebound in industries with a high proportion of employed persons."

Experts emphasize that bold structural reforms are needed to boost overall economic vitality and improve productivity. Professor Kang Seongjin of Korea University’s Department of Economics stated, "The fact that the employment rate is high despite low growth means that the expansion of quality jobs created by the market is not happening properly," and argued, "The government should create an environment that boosts economic vitality by removing various regulations that constrain businesses."

Kim Byunghwan, First Vice Minister of the Ministry of Economy and Finance, said at the ‘9th Job Task Force (TF) Meeting’ on the same day, "We will continuously monitor youth employment conditions and discuss policies to support smooth labor market entry for youth with related ministries, and prepare response measures if necessary."

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