hankyoreh

A public square in Pangyo Techno Valley in Seongnam, Gyeonggi Province, is nearly deserted on Aug. 20. (Yonhap News)

Level 3 social distancing measures, which include the prohibition of gatherings of 10 or more people, have the effect of artificially halting economic activities such as consumption, production, and investment. This is why they are called “shutdowns”: the impact is like flicking a switch and bringing a running factory to a halt. Economic analysts are predicting that the ripple effect of such measures in South Korea could be greater than in the US or Europe, citing factors such as the vulnerable labor market structure.

The impact of a shutdown can be predicted to some extent from the examples seen in major economies like the US during the first half of this year. In the US -- where the shutdown was applied to New York and other major cities rather than nationwide -- the real economic growth rate for the second quarter of this year (April to June) stood at -9.5% (compared to the previous quarter, seasonally adjusted). Similar double-digit negative growth figures were seen in France (-13.8%) and Germany (-10.1%), which imposed shutdowns during the same period.

South Korea was able to achieve a relatively strong -3.3% growth rate during the same period because it avoided a shutdown even during its outbreak from March to April. Experts refer to the intensity of disease control measures and the economy as being in a “trade-off” relationship.

None of the public institutions involved in economic forecasting, such as the Bank of Korea (BOK) or the Korea Development Institute (KDI), has yet presented figures presuming a shutdown scenario. An economic outlook published by BOK in May presumed a situation in which “localized outbreaks of the novel coronavirus may appear intermittently, but without any large-scale renewed outbreak.” On that basis, the bank predicted a 2020 growth rate of -0.2% -- a figure that is appearing very optimistic under current circumstances.

There is no disagreement among experts over the fact that the extent of ripple effects varies according to industry, job type, and labor market position. It’s the same principle behind “untact” industries such as online and gaming businesses enjoying a boost from the virus during the first half of the year, while other areas like travel, aviation, and distribution faced their worst ordeal since the financial crisis of 2008. The same point is vividly demonstrated by an analysis of Statistics Korea economic activity census data (seasonally adjusted). While most industries had not recovered the same level of employment as in February -- the month before the coronavirus erupted -- the differences among industries were striking.

The restaurant and hospitality industries have been making small monthly progress in recovering from the loss of 200,000 jobs between March and April, but were still far short of their February levels as of July. In contrast, businesses involved in the untact areas of IT and specialized technology had more or less recovered their February levels.

Analyses suggest that the labor market structure is such that South Korea stands to suffer an even worse impact from an economic shutdown than other countries. The reason has to do with the larger amount of in-person contact than in other countries and the large percentage of jobs that cannot be done remotely. In an Aug. 18 report titled “Calculating and Evaluating Employment Vulnerability to the COVID-19 Virus,” Oh Sam-il, director of the BOK Research Department, said, “If intensive shutdown measures are implemented, approximately one in three employed persons will be unable to engage in normal economic activity.”

“The threat of unemployment will be especially large among vulnerable demographics such as young people and those with low educational attainment and income,” he predicted. This suggests that focused government assistance to vulnerable populations will be needed if Level 3 social distancing measures are implemented.

Economic officials have shied away from discussing response strategies that anticipate a Level 3 social distancing scenario. The reason appears to stem from concerns about a renewed debate over how such a large budget would be assigned and distributed. In a telephone interview with the Hankyoreh, a key Ministry of Economy and Finance official said, “There haven’t been any discussions at all within the economic ministries about ‘Level 3 distancing.’”

The administration is currently moving forward with economic policy approaches such as the Korean New Deal that were developed in July without consideration of the possibility of a second outbreak.

By Kim Kyung-rak, staff writer

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