Korea’s rapidly aging population is usually considered a major drag on long-term growth, however, there might also be some benefits to it. In a report released last week, global rating agency Standard & Poor’s predicted that the country’s proportion of aging population-related government spending to gross domestic product would rise from 7.7 percent in 2015 to 17.8 percent in 2050. The rate of increase is the fourth fastest among the 58 countries surveyed and the most rapid among the 34 nations categorized as advanced economies. Korea’s political parties are certain to churn out a raft of pledges to win support from the more than 10 million senior voters aged 60 and above in the lead-up to next year’s presidential election. It is also widely perceived that increased life expectancy holds back growth as it tends to lead to people cutting their spending to prepare for a longer post-retirement life. A baby born here in 1970 was expected to live for less than 62 years. The average life expectancy for Koreans rose to 76 years old in 2000 and 82.4 in 2014. Departing from convention, recent reports released separately by two local research institutes highlighted the positive effects of extended life expectancy on the Korean economy, stressing the need for policies that can help the aging population to enhance rather than undermine the competitiveness of the country. The Korea Development Institute, a state-run think tank, noted in a report that extended life spans reduce consumption in the short run but eventually boosts the economy through an accumulation of capital, which encourages spending and investment. According to an analysis by KDI, an extension of life expectancy by half a year results in a 0.3 percent rise in savings and a 0.39 percent drop in consumption in the following year. In two decades, however, the annual rate of increase in savings decelerates to 0.19 percent and consumption rebounds to a 0.33 percent increase. The KDI report estimated that Korea’s increased life expectancy has helped boost its economic growth by 0.4 percentage points over the past 15 years, noting it may cushion the impact of a decline in the country’s growth potential. “It is important to foster structural conditions that help prompt increased savings to be invested and create demand for the expanded elderly workforce,” said Kwon Kyu-ho, a KDI researcher. A report published by Hyundai Research Institute last week said that the economic role of seniors would be much greater in what is called the “senior shift” society, in which most laborers and consumers are made up of the elderly. The size of senior-friendly industries, which has shown annual double-digit growth in recent years and is currently worth 27 trillion won ($22.9 billion), is projected to expand to 78 trillion won by 2020, according to the report. “The government should implement more proactive policies in relation to population aging,” said Chang Hu-seok, a researcher at HRI. He suggested more incentives should be offered to companies to encourage them to employ more senior workers. Keeping as many of them as possible in the workforce is needed to reduce the country’s elderly poverty that has been deteriorating over the past years. There is also much work to be done to strengthen social safety nets. According to data from the Organization for Economic Cooperation and Development, 49.6 percent of elderly Koreans lived in poverty in 2012, far above the 12.6 percent average for the group’s 34 member states. Korea’s elderly poverty rate even surpasses that of Japan, the world’s most aged country, which stood at 19.4 percent in the cited year. Aside from growing criticism of political populism, further expanding benefit programs seems necessary to help the country’s many elderly citizens who face economic predicaments. But it may be beyond Korea’s fiscal means to completely finance social safety nets that cater to its rapidly aging population. S&P warned that without a proper policy response, Korea is likely to see its sovereign rating downgraded by five notches from the current “AA minus” to “BBB” in 2050. A growing number of politicians and experts have called for raising taxes to fund welfare increases. However, it still seems that they will have to pay equal or more attention to helping elderly people earn more income on their own in keeping with the rapid aging of the population. (khkim@heraldcorp.com)
