Understanding S. Korea’s bafflingly low unemployment rate

Posted on : 2023-11-24 16:29 KST Modified on : 2023-11-24 16:29 KST
There is a weakening correlation between the relative rising and falling of economic conditions and employment numbers in Korea
Older Koreans fill out resumes at a booth at the “60+ Senior Job Fair” held at the Busan Exhibition and Convention Center in the southeastern city’s Haeundae District. (Yonhap)
Older Koreans fill out resumes at a booth at the “60+ Senior Job Fair” held at the Busan Exhibition and Convention Center in the southeastern city’s Haeundae District. (Yonhap)

The ultimate aim of economic activity is consumption, and employment is the source of the income used to consume. This is one reason the unemployment rate is a more important indicator than the inflation, interest or growth rates.

As of September 2023, the number of employed people in South Korea stood at 28,698,000 out of an economically active population of 29,359,000. The number of unemployed people was 661,000, giving an unemployment rate of 2.3%.

As recently as 2021, the average monthly number of unemployed people was around 1 million. Traditionally, the unemployment rate is at its lowest around August and September; in August of this year, it dipped as low as 2.0% (573,000 people).

In terms of indicators that remove seasonal factors, the monthly unemployment rate has remained in the 2%–3% range for nearly 20 straight months since February 2022. For every time period observed since 2021 — monthly, quarterly and annually — the unemployment rate indicators have been negative without exception, and the employment indicators consistently positive.

An unemployment rate in the 2%–3% range is almost an unimaginable figure, one that surpasses even the natural unemployment rate in the low 3% range that is considered to represent “total employment.” It’s something of an employment puzzle, which has confounded labor market researchers and remains difficult to accurately explain or make sense of through factor decomposition.

Fluctuations in jobs arise through complex complementary and canceling actions among various factors, including business fluctuations, population and industry structures, policies and institutions, globalization, and technological shocks such as those coming from IT-related areas. In that sense, they are difficult to explain in cut-and-dried terms.

At the same time, it can be said that employment indicators tend to lag six to 12 months behind business ones in manufacturing, while moving more or less in tandem for service industries. The “employment surprise” has persisted even despite a real growth rate of 0.9% for the first half of this year (compared with the same period in 2022), which has been the result of poor export and manufacturing conditions.

A few different reasons can be cited for the weakening correlation between the relative rising and falling of economic conditions and employment numbers.

First, the ones driving the growth in employment are women and people 60 and older.

Especially in the 60–69 age group, employment numbers are rising for both men and women. Previously retired, highly educated baby boomers in their 60s are benefiting from longer average lifespans and better health, and they retain their desire to work.

Among women, a sharp rise in employment has been observed among those in their 30s with no children. In a sense, the unemployment rate below 3% is also a reflection of a socioeconomic sore point: South Korea’s low birth rate.

Second, while the rising labor market participation by women and older Koreans has represented a supply-side trend, there has also been growing demand among business entities (individuals and corporations) to hire them. One factor that has been cited here is low labor productivity.

South Korea’s manufacturing industry labor productivity has been declining since roughly the early 2010s. Service industry productivity also remains low, and an increase in production has rather unexpectedly not been observed in the area of computers and IT.

The situation amounts to a “productivity paradox.” It effectively means that within the constraints of 40- and 52-hour workweek ceilings, increasing volumes of labor must be applied to achieve the same product volumes as before.

Third, the areas where jobs have been increasing markedly include health and social services, which reflects the demands of an aging society; caregiving jobs, which mainly employ middle-aged women; hospitality and food, which are benefiting from the relaxation of restrictions on face-to-face interaction post-pandemic; and the jobs areas favored by younger people, which include information and communications positions, broadcasting and video production, and specialized science and technology areas such as research and development, legal affairs, accounting, advertising, opinion surveys, education and engineering/design.

The platform economy (including delivery positions), which has continued expanding even in the pandemic’s wake, may not be able to offer full-time employment to women and seniors who previously had few labor market opportunities available to them, but they are functioning to provide them with small pieces of employment.

Thanks to platform websites for house and office cleaning services, women in their 40s and 50s are able to find the hourly employment they want much more easily these days. Since the pandemic, face-to-face and non-face-to-face jobs have continued and expanded together, rather than either one substituting for the other.

The “trend” of unemployment below 3% today offers a condensed reflection of structural changes to different areas of South Korea’s society and economy, including low birth rates, the population aging trend, and shifting family types.

By Cho Kye-wan, senior staff writer

Please direct questions or comments to [english@hani.co.kr]

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