Longer life expentency?

[Anniversary Special] Korea Unprepared for Aging Society

Longevity is the ultimate wish in life for humans. For millennia mankind has endeavored to expand its life expectancy. Thanks to technological developments in many areas and understanding of what it means to be healthy, life expectancy has increased, especially in the last few decades.

The average life expectancy for South Koreans was calculated at 72.8 years for men in 2001 and 80 years for women, up 5.1 years and 4.1 years from a decade before, according to the National Statistical Office (NSO).

The averages for the member countries of the Organization for the Economic Cooperation and Development (OECD is 74.4 years for males and 80.4 years for females.

However, nobody would have thought that the long-held wish also creates a problem for the society _ an aging labor force.

South Korea: Fastest Aging Nation

South Korea officially became an aging society in 2000 when people aged over 65 made up 7.2 percent of the population.

According to the NSO, the number of people aged 65 or older increased to 3.77 million in 2002, compared with 2.2 million in 1990 and 1.46 million in 1980.

It is forecast that South Korea is destined to become an aged society with the figure rising to 14.4 percent by 2019. The NSO warns that South Korea will enter an ``ultra-aged society’’ in 2026, forcing the country to treble the current costs for supporting the elderly.

Although nearly all OECD member countries face rapidly aging populations, the problem for South Korea is expected to have the fastest pace due to the combination of a low fertility rate and increased longevity, according to an OECD economist.

``South Korea has currently one of the youngest working-age populations among all OECD countries but by 2050 it is likely to have close to the oldest, just behind Japan,’’ said Mark Keese, principal economist at the Employment Analysis and Policy Division in OECD.

Keese said South Korea will see a dependency ratio _ the number of people aged 65 and over as a percent of the population aged 20-64 _ growing faster than any other country in the OECD.

This is largely attributable to South Korea’s low fertility rate, which was 1.17 in 2002, lowest among OECD nations, according to the NSO. South Korea’s birth rate, which was 4.53 in 1970, has steadily dropped along with economic growth. It was 2.83 in 1980, 1.59 in 1990, 1.47 in 2000 and 1.3 in 2001.

More problematic is that the low fertility and increased longevity are working together to expedite the aging of the labor force.

The average age of South Koreans is expected to hit 42.8 in 2020 and 47.7 in 2030, well above the predicted global average of 30.9 and 33 years. In 2000, the average age of South Koreans was 31.8 years, compared to the world average 26.5 years.

Keese pointed out that population aging could lead to a sharp slowdown in labor force growth and economic growth. As a result, the countries affected by this have to focus on how they increase the economic participation of the elderly, which will ease the labor shortage as well as the pressure on the sustainability of welfare systems, he said.

According to the Korea Development Institute (KDI), the percentage of the population that can possibly be engaged in production will fall from 2020. Its economic growth is forecast to be at an average of 2.9 percent for the coming 50 years, the KDI said.

The institute said the number of pension recipients will surge over the coming years due to the rapid aging process, from 4.5 persons per every 100 subscribers last year to 42 persons in 2030 and 103 persons in 2060. The National Pension fund is expected to dry up by 2047, it added.

What Should Korea Do?

The Ministry of Planning and Budget recently said that it would invest 17.4 billion won into a national project next year to create jobs for the elderly, up 569.2 percent from 2003.

The government would also provide a job-training program for 5,000 elderly people and wage support for 20,000 others, while it would create as many as 300,000 job opportunities for the elderly through a state-funded manpower center.

The massive boost in the budget was planned as a preemptive step to reduce the social and economic burden caused by a rapidly aging society.

South Korea is not alone in preparing for an aging society. The OECD launched a thematic review of policies to improve labor market prospects for older workers covering both supply and demand aspects in 2001 and should finish it by 2005, Keese said.

Keese, who has been doing the review, advised that policies to increase the participation of the elderly should be both well-coordinated and comprehensive within a dynamic framework.

``There is no single measure that can solve the problem. Policies to extend working lives need to be tailored to diverse country situations,’’ Keese explained.

``South Korea has to take a range of measures, including a major reform for old-age pension and tackling companies’ age discrimination and negative attitudes to working at an old age,’’ the economist told The Korea Times.

He said more flexible pathways to retirement are also needed but the impact on net labor supply should be carefully evaluated.

At the same time, employability of the elderly must be enhanced through vocational training throughout each person’s working life, which will eventually improve productivity and ease the negative impact of population aging on economic growth, Keese said.

Chang Ji-yeun, a Korea Labor Institute (KLI) economist, agreed that retraining is important to boost the productivity of the older labor force, asserting that re-education at the workplace is the most efficient method.

``Yuhan-Kimberly, a domestic living supplies producer, is an ideal example for retraining since the company provides production line workers with some 300 hours a year of reeducation, including foreign languages and new technology lessons,’’ Chang said.

Chang added that retraining is not effectively realized in advanced countries but South Korea still lags far behind even at that.

Also, eliminating South Korea’s seniority-based wage system, in which the wage level of a worker increases along with the worker’s age, should be the first step taken to persuade companies to hire more older workers, Chang said.

``Most important of all is to get companies to hire more older workers although the change will not be made in the short term,’’ Chang said. ``We have to make the change as a long-term goal that we have to make as we brace for an aged society.’’

Chang said the wage peak system, wherein an employee’s wage gradually decreases according to age after a peak, can be a good option to replace the old method.

``Along with the system, it would be possible to extend the employment of the aged by implementing a pay system based on the worker’s current productivity as France does,’’ Chang said.

She said these wage systems could prevent the nation from squandering human resources with considerable work experience to retire at an early stage, in their late 40s or early 50s as can be seen today.

Keese also agreed that the system is useful when there is a guarantee of continuing employment for workers. ``However, that is not what the government can simply impose as employers and unions have to agree first.’’

The OECD economist said the government has to push hard to reform the pension system and to increase the official retirement age so as to prevent workers from retiring early in the hope of receiving their pension.

Also, Keese said South Korea needs to expand the number and quality of public employment offices for the elderly, as the current ones are often confined to helping them find jobs in a narrow range of occupations.

Chang added that increasing paid volunteer jobs would be a good idea in non-profit organizations and the socio-economic sector.

Going Opposite Direction

The current slowdown in the economy has led many companies into taking the opposite direction in regard to managing the aging workforce.

Many South Korean firms are turning to early retirement programs as a means of achieving labor market flexibility in reaction to this year's economic recession and high youth unemployment rate, the first instance since the country overcame the Asian financial crisis of late 1997.

For instance, POSCO, the world's fifth-largest steel maker, is running an ``anytime early retirement system’’ for middle managers or higher ranking employees, with the scheme offering retirees compensation worth 5 to 45 months of salary and extra retirement payouts.

KT, South Korea's largest fixed-line telecom operator, announced in late September that it would slash some 5,500 jobs, equivalent to 12.6 percent of its entire workforce, through an early retirement program.

Doosan Heavy Industries and Construction, a major engineering firm, recently offered the early retirement option for middle and senior management and about 350, or 12.5 percent of all workers, took the opportunity.

The companies said that they adopted the measure in response to stagnant sales and tough competition in the saturated market, which resulted in the high youth unemployment rate.

The unemployment rate for those aged between 15 and 29 also fell two straight months to 6.6 percent in September from 6.9 percent in August and 7.5 percent in July. But the figure was two times higher than the overall rate of 3.2 percent.

Also, the early retirement programs have led to an increase in the jobless rate of people in their 30s increasing for two consecutive months to 3 percent from July’s 2.8 percent.

Keese, however, said that early retirement would not necessarily create jobs for younger workers. Although, in several countries early retirement schemes were introduced in the past in response to deep recessions and rising unemployment, it has been proved that the scheme was ineffective in creating jobs, he said.

``If there is fixed number of jobs, it is true that retirement of older people creates jobs for younger workers,’’ Keese said. ``But, rather than there being a negative trade-off between older and younger people in terms of job opportunities, better employment outcomes for older people appear to be associated with better outcomes for younger people as well.’’

Solving Problem With Problem

The KLI’s Chang said resolving other labor problems in South Korea will substantially help the nation get through the obstacles regarding the aging labor force.

``The female workforce, one of the most underutilized human resources in South Korea, will positively influence not only the economy but also the aging labor force problem,’’ Chang said.

More people working means more tax and pension payments, which will increase the government’s budget for the elderly, Chang said.

According to the OECD, the participation rate of Korean women in the labor market is 53.4 percent, falling short of the 60 percent average in the OECD. Moreover, the figure for women with bachelor degrees or better stood at 56.6 percent, significantly lower than the OECD average of 78.4 percent.

Kim Tae-hong, a senior research fellow at the Korea Women’s Development Institute, said that companies tend to hire males rather than females, especially when business conditions are bad, as they believe the number of years female workers stay with a firm has traditionally been shorter than that of male workers.

Resolving the youth unemployment problem will both avert the current emigration rush among the younger generations as well as the youth workforce outflow.

However, these problems cannot be solved properly unless comprehensive measures for the economic issues are devised, experts insisted.

Bae Keun-min Staff reporter kenbae@koreatimes.co.kr