Study On The Economic Ripple Efects Of Population Ageing In Korea

The economic ripple effects of an aging population manifest across several dimensions, such as the economic growth rate, labor market, and assets market. Korea became an aging society in 2000 and is expected to become a super-aging society by the middle of 2020. This study analyzed the effects of population aging on Korea’s society and economy and suggested proactive and comprehensive political countermeasures. The study first investigated key theories on population aging and discussed their applicability to the Korean phenomenon, which can be divided into three processes: the aging of the entire population, the aging of the economically active population, and the aging of the elderly population. Korea’s population aging started late but has progressed rapidly; its most important factor is the low birth rate of Korean women. Second, an analysis of the simple correlation among three population indexes(i.e., birth rate, population growth rate, and the economically active population ratio) showed that, while the growth rate will be high when the birth rate is low(until mid-2030), this correlation will likely reverse afterwards. Moreover, a significant growth enhancement effect is expected if the total factor productivity improves due to workforce expansion through the aggregation of human resources and research and development, signifying that alleviating the potential growth slowdown due to Korea’s population aging requires that Korea’s economic growth strategy change from a quantitative to a qualitative focus. Third, the main features of Korea’s employment structure are an increase in elderly and well-educated workers and an increase in the well-educated among employees 50 or older. While the increase in elderly has reduced labor productivity, the increase in the well-educated has increased it. Fourth, we examined classic and modern theories on population aging and asset markets and analyzed how Korea’s population aging will affect financial, asset, and housing markets based on Korean households’ current asset possession pattern. This pattern was found to have a low proportion of financial assets out of total assets, a high proportion of safe low-profitability financial assets out of total financial assets, a low proportion of private pensions out of household financial assets, and a low proportion of indirect financial investments out of financial investment assets. Korea’s population aging is thus expected to cause a rapid reduction in financial or aggregated assets among the elderly population 65 years or older and to increase the probability that financial assets will be concentrated on the bond market rather than the stock market. Our results show that Korea’s rapid aging impedes the productive accumulation of capital and may hamper growth. Therefore, Korea may experience intense ripple effects if socioeconomic reforms are not implemented soon.