19 July, 2024
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| A neonatal room at a hospital in Seoul. Photo by Yonhap |
The government's latest warnings about an impending labor productivity collapse, driven by a rapidly spreading labor shortage due to declining birthrates and an aging population, are as bleak as they are unsurprising. Forecasts indicate that productivity will continue to nosedive through the 2030s, failing to rebound even by 2060.
On Sunday, Kang
Jong-koo, Governor of the Bank of Korea, highlighted these grim findings in a
recent study titled “The Impact of Population Aging on Labor Productivity by
Industry.” Kang pointed out that from 2023 onwards, the proportion of the
elderly population will balloon while the working-age population shrinks,
inevitably dragging down productivity in the near future.
This study,
drawing from data spanning 22 high-income OECD countries from 1990 to 2018,
analyzed the effects of demographic shifts on labor productivity. Initially,
older workers bring increased skills and productivity, but as cognitive and
adaptive abilities decline, so does overall productivity. Essentially, while
experience may improve job performance, the inevitable slowdown of aging
workers means they can't keep up with modern demands.
According to
Statistics Korea's population projections, South Korea's productivity will
continue its downward spiral through the 2030s. Alarmingly, last year already
marked the beginning of this decline due to workforce aging. The study reveals
that demographic changes boosted productivity in manufacturing and services
until 2016, but since then, it's been a downhill journey. While manufacturing
might claw its way back to current levels by the 2060s, the service sector is
likely to remain trapped in a long-term rut of inefficiency.
The situation is
exacerbated by South Korea's rigid labor market and excessively long working
hours, making it one of the least productive among advanced economies. With
18.4% of the population aged 65 and older last year, this figure is expected to
rise to 20.3% next year, 30.9% by 2036, and surpass 40% by 2050.
Experts are
urging immediate reforms to mitigate the productivity decline. Kim Jung-sik, a
professor at Yonsei University's School of Economics, criticizes the annual
wage system for its inability to boost work motivation and its role in
hindering the hiring of middle-aged workers. “We need labor reforms to
establish a performance-based hierarchy, enabling employment regardless of
age,” he argues.
Once again, the
government seems to be standing by, watching the train wreck in slow motion,
utterly incapable of implementing meaningful solutions to avert a looming
economic disaster.