"South Korean Economy in the 2060s 'Negative'... Growth Rate Could Increase by up to 0.8%P if Population Grows"

It has been argued that mitigating the population decline and increasing the labor supply could raise the economic growth rate from 2026 to 2070 by 0.4 to 0.8 percentage points compared to previous projections. South Korea's total fertility rate (the average number of children a woman is expected to have in her lifetime) has dropped to the 0.7 range. If this trend continues, the potential growth rate will fall into negative territory in the 2060s. However, increasing the labor supply through higher birth rates, greater economic activity participation, and expanded immigration could maintain a positive growth rate, according to the analysis.

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According to the report titled "Economic Effects Analysis of Expanding Labor Supply in the Era of Low Fertility and Aging" released by the Korea Economic Research Institute (KERI) on the 28th, the estimated economic growth rate between 2026 and 2070 ranges from -0.1% to 1.6%. If the labor supply increases, it rises to 0.7% to 2.0%, which is 0.4 to 0.8 percentage points higher than the previous forecast.

KERI estimated the potential growth rate based on the medium scenario of population projections by Statistics Korea. According to Statistics Korea, the working-age population (ages 15 to 64) is expected to decrease by about 33.2% from approximately 36.57 million last year to 24.45 million in 2050. By 2070, it is projected to decline by about 53.2% to 17.11 million. Under this scenario, South Korea's potential growth rate is estimated at an average annual rate of 2.3% for 2021?2025, 1.0% for 2031?2040, 0.7% for 2041?2050, 0.2% for 2051?2060, and -0.1% after 2061.

KERI analyzed the economic effects by dividing the labor supply expansion scenarios into three: (①) increase in fertility rate, (②) increase in fertility rate and economic activity participation rate, and (③) expansion of fertility rate, economic activity participation, and immigration.

In the first scenario, children born now will enter the economically active population starting in the 2040s. The average annual economic growth rate is expected to increase by 0.1 percentage points from the baseline forecast for 2041?2050, 0.2 percentage points for 2051?2060, and 0.2 percentage points for 2061?2070. The baseline forecast refers to the projection measured without labor supply expansion, based on the current medium population projection.

Under the second scenario, the growth rate rises by 0.2 percentage points for 2026?2030, 0.4 percentage points for 2031?2040, 0.5 percentage points for 2041?2050, 0.6 percentage points for 2051?2060, and 0.6 percentage points for 2061?2070 compared to the baseline forecast.

If the most optimistic third scenario is realized, the growth rate increases by 0.4 percentage points for 2026?2030, 0.6 percentage points for 2031?2040, 0.7 percentage points for 2041?2050, 0.8 percentage points for 2051?2060, and 0.8 percentage points for 2061?2070 compared to the baseline forecast. Under this scenario, the gross domestic product (GDP) size would be larger by an average of 47.6 trillion KRW (2.2%) to 854.4 trillion KRW (31.6%) annually compared to the baseline forecast. The average GDP for 2061?2070 is projected to reach 3,559.2 trillion KRW.

On the afternoon of February 28, a nurse is caring for a newborn in the neonatal room of a postpartum care center in downtown Seoul.
[Photo by Yonhap News]

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KERI emphasized the urgent need to implement policy support that encourages raising the fertility rate, increasing economic activity participation, and expanding immigration. To raise the fertility rate, it stressed the importance of strengthening work-family balance through measures such as expanding flexible working hours. It also called for policies to create quality jobs, alleviate the dual structure of the labor market, secure substitute labor, and provide tax and subsidy incentives.

To increase economic activity participation, measures should be devised to encourage participation by women, the elderly, and young NEETs (Not in Education, Employment, or Training) who have given up job seeking. It is necessary to expand support for work-family balance, strengthen vocational education and training programs, reform wage systems based on performance and job roles, and enhance psychological counseling services and mentoring programs.

To increase immigration, it is essential to dramatically improve the living conditions for foreign skilled workers by easing visa issuance requirements for professionals, relaxing conditions for permanent residency and nationality acquisition, and improving settlement conditions.

Cho Kyung-yeop, Senior Research Fellow at KERI, stated, "If foreign labor is used merely as a means to alleviate labor shortages, it may delay industrial and corporate restructuring, weakening national competitiveness in the long term." He added, "The scale of foreign labor attraction should be determined from a comprehensive perspective to respond to long-term changes in labor structure, employment conditions, and industrial structure."

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