[Economy Pulse] To Address the Population Crisis, Saving Businesses Must Come First

Many of the major issues arising from rapid demographic changes originate in the labor market. Difficulties in balancing work and family life, career interruptions for women, and the shortage of jobs for young people are among the main causes of low birth rates. Excessive private education and the concentration of youth in the Seoul metropolitan area also have their roots in labor market imbalances. Policies such as extending the retirement age and promoting continued employment are being discussed as key measures to prepare for a super-aged society, while the shortage of care workers in the face of surging demand is ultimately a labor market problem as well. For these reasons, expanding job opportunities for young people, women, and the elderly is a staple of population policy. From an economic perspective, increasing the labor force participation of women and older adults is a crucial response to the shrinking working-age population.

However, it is questionable how effective increasing employment for women and the elderly will be in addressing national economic and demographic challenges when the total number of jobs remains stagnant, as it is now. This could turn into a zero-sum game. Supporting concerns that extending the retirement age would reduce job opportunities for young people, recent employment trends by age group show that employment rates among the elderly have risen while youth employment rates have declined. Moreover, most of the new jobs for older adults are low-quality positions. If this trend continues, it will have little effect on resolving the population crisis and the problem of low economic growth.

To make matters worse, the total number of jobs is likely to decrease in the future. Companies facing fierce competition are replacing workers with automated machines to cut labor costs, and foreign workers are filling positions in less popular sectors such as regional manufacturing and agriculture and fisheries. As the domains of machines and foreign workers continue to expand, it is doubtful whether the promise to boost employment for young people, women, and the elderly can be kept.

Increasing the total number of jobs is the only solution. To achieve this, there must be more companies, and these companies must create quality jobs. However, the government cannot force companies to create jobs. Unless they are social enterprises established for the purpose of job creation, the top priority for companies is profit. If there are no opportunities for profit, there is no reason for companies to increase employment, invest, or start new businesses. Therefore, the government's top priority must be to innovate market systems and environments so that companies can find economic opportunities and increase employment and investment.

However, Korean companies today are facing a comprehensive crisis. The tariff war is putting enormous pressure on them to reduce costs, and the anticipated increase in corporate taxes is adding to their financial burden. Amid revisions to the Commercial Act and the Yellow Envelope Act aimed at protecting shareholders and labor unions, companies are walking on thin ice. High regulatory barriers make it difficult to find domestic investment opportunities. Unfortunately, most companies are unable to come up with their own solutions and are left waiting for guidance from the government and the ruling party. In such a crisis, it is questionable whether companies can strengthen work-family balance and actively hire young people and the elderly to help solve national demographic problems.

Going forward, policies on labor and business will become so important that they will determine the pace of the population crisis. In an era of demographic crisis, the social benefits of job creation by companies will outweigh the benefits the government gains from tightening regulations and increasing tax revenue. The United States, after concluding tariff negotiations, announced that more than 100,000 jobs would be created in the U.S. as a result of Korean investment. In other words, this means that 100,000 job opportunities will disappear from Korea. Yet, government and ruling party policies on business are becoming increasingly detached from practical realities, which is concerning. A pragmatic government should implement practical policies to recover quality jobs that are disappearing and to save domestic companies hit by tariff hikes by lowering tax burdens and regulatory barriers faced by Korean businesses.

Hong Seokcheol, Professor of Economics, Seoul National University

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