The Organization for Economic Cooperation and Development on Monday pointed out a set of key issues confronting South Korea at large in its latest report, offering suggestions that deserve full attention from policymakers of the Yoon Suk-yeol administration.
In the 2022 OECD Economic Survey of Korea, the organization laid out its predictions about the country’s economic conditions going forward. It forecast Korea’s gross domestic product growth would stay in the low 2 percent range next year, along with slower-than-expected exports and private consumption.
The Paris-based OECD raised its 2022 inflation outlook for the country to 5.2 percent amid deepening worries about soaring prices, citing high energy prices due to the war in Ukraine. It warned that the economic recovery would continue albeit at a slower pace, as the omicron variant and supply chain disruptions weighed on economic activity.
These forecasts alone are serious enough for economic policymakers to check up on what should be done to provide further momentum to the embattled economy, especially at a time when the local currency is rapidly losing its value against the US dollar and pressure to raise interest rates is mounting.
Yet the biennial report includes more serious and important warnings about Korea’s inequalities that affect a range of issues including a wide productivity gap, a low youth employment and the weak social safety net.
From the viewpoint of the OECD, Korea’s sizable productivity gaps are triggering inequalities. “The productivity gap between small and large, highly productive companies is reflected in labor market dualities of income, job quality and social protection,” it said.
The Korean government’s economic policy has long been focused on providing generous support to conglomerates so that they can lead the country’s export-driven economy. But in the process, it has largely failed to help create a viable business environment where small companies can thrive. The OECD suggested that Korea should focus on “supporting people and business dynamism rather than firm survival” -- a piece of advice that should be applied to a misguided idea of pouring taxpayers’ money into firms saddled with debt to keep them afloat.
The productivity gap is causing income inequality, which also leads to labor market dualism, the OECD said, referring to the stark reality in which regular workers enjoy high wages and solid social insurance coverage, while nonregular workers in small companies suffer poor working conditions.
The organization also touched on the well-known yet largely unresolved issue of Korean women ending up on the wrong side of the labor market after childbirth.
“This stark choice between career and family largely stems from social norms and unforgiving work practices,” the OECD said. “The situation holds back female employment and leads young women to postpone family formation and have fewer children over their lifetime.”
Not only women but also young people in general face a strong challenge. The organization said inequalities in the workplace, sparked by productivity gap, is generating fierce competition among young people to enter prestigious universities and land jobs at large companies -- a phenomenon that the OECD dubbed as the Korean “golden ticket syndrome.”
The organization warned that the syndrome is resulting in low youth employment and family formation. Worse, it reduces life satisfaction and potentially has a long-term scarring effect.
Policymakers should also pay attention to the analysis of the OECD concerning the country’s problem-laden social safety net. It said that weaknesses in the social safety net is linked to persistently high income inequality and poverty, especially among the elderly.
The government should review the OECD report closely and consider incorporating some of the key suggestions into its policies as the problems pointed out in the report are not only serious but also critical for many Korean citizens -- if they are left unresolved.