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[Editorial] Unavoidable path

Retiring second-generation boomers to drag down economic growth rate

July 4, 2024 - 05:30 By Korea Herald

In South Korea, those who were born between 1964 and 1974, which is a period when the country’s economic development began in earnest, are called the second baby-boom generation.

They number 9.54 million, accounting for 18.6 percent of the country’s total population and as much as 33 percent of 28.91 million Koreans who are in some form of employment.

Also, their population is 35.3 percent larger than 7.05 million first-generation boomers born between 1955 and 1963. Beginning in 2015, the first-generation boomers reached the statutory retirement age, and the last born in the generation exited the work force last year.

Now it is the second-generation’s turn. They will reach the retirement age beginning this year and leave the employed population gradually for 11 years.

Obviously, as boomers retire, it will hurt economic growth because their retirement directly reduces the size of the labor force.

The Bank of Korea estimated in a report on Monday that the first-generation baby boomers’ retirement lowered annual Korean economic growth rate by 0.33 percentage point. However, the central bank forecast that when the second-generation boomers retire, the annual growth rate will further decrease -- by 0.38 percentage point.

This looks inevitable. The country’s labor force is decreasing in the aftermath of its low birth rate, among other things. The population of those who are now 15 to 25 years old and expected to join the workforce gradually for 11 years down the road is some 5.67 million, which is only about 60 percent of the number of second-generation boomers.

Korea, a country of 51 million people, is expected to become a superaged society as early as this year, when the number of those aged 65 and older is likely to exceed 20 percent of the population. In this situation, an ever-increasing number pf retirements, together with a low birth rate, will damage the economy. Measures to buttress growth must be worked out.

It is a relief that the BOK report did not draw only a grim picture of the future. It predicted that if the employment of those in their 60s maintains the current upward trend, the expected fall in growth rate will diminish by 0.14 percentage point. Korea is entering an era where older employment is becoming necessary to sustain economic growth.

The same conclusion came in an earlier report by the Korea Employment Information Service. It is estimated that 894,000 workers will need to join the labor force each year to sustain an annual growth rate of around 2 percent until 2032. To do so, it is essential to keep older workers employed, the service said.

Fortunately, second-generation boomers are said to be more motivated to keep working after retirement than first-generation boomers. They are also well-educated and possess excellent IT skills.

They are a good human resource capable of adapting to jobs to be created in the process of innovating technologies. It is good not only for the national economy but also personally to keep them working.

However, one of the problems with this is how companies can cope with personnel expenses that will likely increase if the retirement age is extended. In a situation where youth unemployment is already serious, the extension of the retirement age can lead to a reduction in the employment of young people. Measures to cut down the burden of labor costs must be taken. Wage systems need to be adjusted to reflect both later retirement and youth unemployment.

The most effective and practical way to minimize the likely fall in growth rate is to have second-generation boomers keep working. This is an unavoidable path. It is time for labor, management and government to try to reach a consensus on how to make the best use of second-generation boomers' abilities to cope with declining workforce. They must start a discussion before it’s too late.