May 28, 2024
SEOUL – South Korea’s labor market remains strong even as the country’s economy went through one of the toughest years in history during 2023, according to official figures. It is fortunate, given that weak exports and depressed domestic demand have combined to bring gross domestic product growth down to the lowest in modern history last year except for crisis years.
On a four-quarter moving average basis, the country’s employment rate for the whole population aged 15 years or older stood at 62.7 percent as of the first quarter of this year, marking the highest on record and up from 62.3 percent in the same quarter of 2023, according to data from Statistics Korea. The number of people in employment also grew by 300,800 in the first quarter from a year before, also on a four-quarter moving average basis.
However, these rosy figures represent only part of the reality, as solid job growth has been led mainly by older people and by relatively low-paying positions. For instance, employment would have dropped in the first quarter from a year earlier if not for older people, as employment rose by 325,300 among those aged 65 years or older, outpacing the total gain of 300,800.
More alarmingly, the number of employed people aged between 15 and 29 years fell by a huge 99,000 in the first quarter of this year, while the figure also dropped among those in their 40s, albeit by a smaller margin of 52,000. The number rose for those in their 30s in recent years, but this followed several lackluster years during the COVID-19 pandemic period, according to Statistics Korea data.
Meanwhile, household income data, released last week, added gloom to South Korea’s labor market situation by providing indications that solid employment data may be led by relatively low-paying jobs. The data showed that average household income fell by 1.6 percent during the first quarter from a year before on a seasonally adjusted basis, the worst showing for the January-March period in seven years.
The decline in household income was led by a sharp 3.9 percent decrease in labor income during the same period over a year before, marking the worst showing since comparable data release began in 2006, according to Statistics Korea. The first quarter is a period when many South Korean companies pay bonuses for business performance for the preceding year, and therefore, the drop in labor income reflects worsening business performance.
Moreover, disposable household income after deduction of taxes and other mandatory charges has fallen by 1.6 percent in real terms during the first quarter from a year before, turning around from two consecutive quarters of growth because income failed to grow faster than the increased burden of mandatory expenses.
The worsening household income data despite solid labor market indicators poses a dilemma for policymakers, especially for the Bank of Korea, which last week maintained its projection for weak domestic demand during the rest of the year while raising its forecast for this year’s gross domestic product growth on the back of rising exports.
In its regular revision of economic forecasts, the Bank of Korea lifted its forecast for this year’s economic growth to 2.5 percent from 2.1 percent seen before, citing a better export outlook than before and strong growth in the first quarter of the year. However, it maintained its projection for this year’s inflation at 2.6 percent while cutting next year’s economic growth forecast to 2.1 percent from 2.3 percent previously.
After its monetary policy board kept the base rate target unchanged at 3.50 percent, Bank of Korea Gov. Rhee Chang-yong indicated that the policy rate would not be lowered over the next several months due to increased uncertainty over the future course of inflation. This means the levels of both interest rates and consumer prices will remain high for a longer period than expected, an unwelcome situation for consumers and companies alike.
The Finance Ministry is also faced with a dilemma because it is widely expected to keep the focus of its fiscal policy on a tightening bias, resisting calls for increased budget spending on creating more decent jobs or supporting companies. However, the exports-led economic recovery will hardly help the outlook for employment as the link between exports and domestic employment has become looser than before.
Moreover, the current rebound in exports is mainly driven by the rise in prices for semiconductors and other technology sectors, instead of a rise in volume for goods in more labor-intensive industries. Policymakers need to take this into more serious consideration when reviewing economic situations and preparing for economic policies for the future.
Policymakers need to think ahead of the curve and make bold decisions when needed because the cost will only increase as time passes for the economy to regain momentum, and the hardship will only grow for the general public.