VIETNAM NATIONAL UNIVERSITY - HO CHI MINH CITY

INTERNATIONAL UNIVERSITY
SCHOOL OF BUSINESS

MIDTERM ASSIGNMENT

AGING WORKFORCE IN KOREA

Student’s Name: Dinh Thi Quynh Hoa

Student’s ID: BABAIU20054
Lecturer: PhD. Pham Tan Nhat
Subject: Human Resources Management
Date: 11/10/2023
I. Introduction

Aging populations are a challenge facing many developed countries and emerging
markets. The growing elderly population represents not only an increase in the
proportion of older people remaining in the labor force but also a change in the age
distribution of the labor force. It poses difficult questions for that country's economic
development and social security benefits.

One of the nations having a rapidly aging population is Korea. The employment-to-
population ratio of people 65 and over in 2022 was 36.2%, up 6.1% from a decade
earlier. The greatest employment-to-population ratio of the elderly was observed in
South Korea in 2021 among OECD members. Over two decades, the proportion of
older adults (50–64) in the working-age population (15–64) has increased
significantly from 59.3% in 2000 to 70.6% (in the same age group ) by 2020 (OECD,
2022). Due to low birth rates and high life expectancy, the elderly workforce is
anticipated to expand even more quickly. This situation is becoming more serious as
the number of married couples is decreasing, leading to a decrease in the birth rate,
increasing the risk of Korea facing a population disaster. For many years in a row,
Korea has been in the group of developed countries with a decreasing birth rate and
currently the birth rate in Korea is the lowest in the world. After the first generation
of birth statistics in 1970, the total fertility rate (the number of births a woman would
have if she experienced the present age-specific birth rates throughout her
childbearing years) reported 0.78 children per woman in 2022, setting a new record
low. In this report, I will present some of the challenges that an aging workforce
presents based on published data and then recommendations for this phenomenon.

II. DATA ANALYSIS

1. Decrease of Workforce

Changes in the labor force's size and age composition, as well as slow and eventually
negative labor force growth, will be the main effects of rapid aging on the labor
force. In 2022, the working age population (15–64) made up 36.69 million people, or
71.0% of the total population. 17.5% (9.15 million people) of the population were
seniors (age 65 or over). The number of people under the age of 15 and those in the
working age group decreased by 228 thousand (-0.4%) and 258 thousand (-0.6%),
respectively, compared to 2021. While the elderly population increased by more than
440 thousand people (0.9%). The proportion of people who are working age
decreased by 2.2%p (-883 thousand people) compared to 2017.
Table 1. Population projections in Korea

The percentage of South Korea's working-age population, which peaked at 73.4% in

2012, is expected to decline from 54.4% in 1970 to 71.0% in 2022, 56.8% in 2040,
and 46.1% in 2070. According to projections, South Korea's percentage of the elderly
population will increase from 3.1% in 1970 to 17.5% in 2022, a six-fold increase. In
2070, this percentage is predicted to increase to 46.4%.

Figure 1. Population Prospects (based on the 2021 Population Projections)

Besides, Korea's birth rate reaching a record low has brought a threat to the futur
workforce. After the first generation of birth data in 1970, the total fertility rate (the

Figure 2. Number of live births and total fertility rate (1970-2022)

number of births a woman would have if she experienced the present age-specific
birth rates throughout her reproductive years) reported 0.78 children per woman in
2022, setting a new record low. The crude birth rate, which is the number of live
births per 1,000 people, was 4.9 in 2022, down from 5.2 in 2021.

Population aging in Korea will lead to a significant decline in future economic

growth due to falling savings rates and negative labor productivity growth by being
harnessed by an ageing population. In addition, labor productivity growth in Korea in
2022 is 0.1%, much lower than the average of 2.0–4.0% over the past 12 years. The
GDP per capita growth potential of Korea is predicted by the OECD Long-Term
Model to decrease from around 3% per year in 2005–22 to approximately 1% per
year in 2023–2060. A decrease in the working-age population is responsible for
almost half of the fall.

Figure 3. Labour productivity, Annual growth rate(%) 2010-2020

 Figure 4. Potential GDP growth based on prediction of OECD
2. High dependancy ratio

Above all, an aging population will lead to a continuous increase in the dependency
of the elderly.According to projections, the old-age dependence ratio would climb
from 22.5 individuals per 100 people of working age in 2020 to 63.4 persons per 100
people in 2040 due to an increase in the older population. Increasing numbers of
elderly people and their reliance on assistance will put a significant burden on public
coffers, among other factors. The increasing proportion of elderly and elderly
dependents will create serious strain on public finances.

Figure 5. Denpendency ratio

 South Korea's pension spending over the years has increased significantly from
1.97% of GDP in 2010 to 3.61% of GDP in 2022, according to the OECD, and there
is no decreasing trend. In addition, according to a report by Korea Statistic, the total
number of workers registered to receive pensions increased by 2.8% from 6.648
million people in 2020 to 6.838 million people in 2021, this causes huge damage to
the government's budget. There may be a variety of intergenerational conflicts and
slower economic development as a result of the anticipated increase in public
spending as well as the corresponding increases in taxes and social security
contributions.

The rapidly aging population and health-related budget pressures to improve the
quality of life for the elderly while reducing the care burden of families, as well as is
weighing on government spending. As a result of Germany and Japan adopting
similar policies, South Korea became the third OECD country to implement LTCI, or
long-term social insurance care The LTCI benefit consists of three components:
financial compensation in some circumstances, institutional care, and home care.
From 2009 to 2018, the average annual rise in public LTCI spending per beneficiary
was 5.4%, resulting in 12,705 USD (0.37 percent of GDP) in 2018.

Figure 6. Pension spending by public, %GDP, 2010 -2020 Table 2. Expenditure under public LTCI

3. Reduce national financial sustainability

The aging population poses a significant threat to financial sustainability because

of growing costs and declining income. Declining consumption results from a
declining labor force, which lowers tax income. Additionally, social spending has
been steadily rising on programs connected to the elderly, such as health care,
public pensions, and other safety nets. Most nations might face severe long-term
 financial hardship as a result of this, particularly developing nations with less
established and mature social protection programs. Meanwhile, improved social

integration and sustainable growth are necessary for an expanded social security
system.

Older workers are also challenged by the skills needed in South Korea's increasingly
knowledge-based economy. The proportion of the 55–64 age group with a university
degree was only 13% in 2010, compared with 65% of the 25–34 age group, the third
highest among OECD countries. The gap in educational attainment between age groups
is the widest among OECD countries, putting older workers at a competitive
disadvantage. Additionally, 65% of workers age 50 and older are in physically
demanding jobs such as manual labor that tend to be low paid (Jones & Tsutsumi, 2009).
This also leads to a serious impact on the income of the elderly and promotes early
retirement.

III. RECOMMENDATIONS
1. Improving hiring and job retention for older workers in Korea
Government laws should be implemented to allow workers to retire for longer
periods of time. For example, the obligatory retirement age could be lowered to
65 years old. Policies that support obligatory retirement and wage setting, such
as those that prohibit age discrimination, should also be in place. The
government need to support laws that forbid age discrimination in the
workplace, support senior employment, and forbid treating older employees
unfairly when it comes to recruiting, firing, and compensation. employment,
education, career progression, and other facets of the working world. It is
possible to reduce age discrimination in Korea by altering the cultural norms of
the labor market. It will also call for a shift in HRM methods from the existing
tenure- and age-based ones to ones that are more performance- and job-based.

2. Improving skills and productivity

Whether or not older workers find it harder to pick up new skills is a crucial
factor in determining how aging impacts production era where the workforce is
aging quickly, the main concern is how to maintain older workers' productivity
and employability. Over the coming decades, an increase in the share of older
workers may hinder human capital growth and technological progress in Korea
if old workers are less productive than young workers. However, if they are
better educated, continue to grow their human capital after formal schooling by
adapting to new technology, and have more job experience, their productivity
may not be lower than younger people.

3. Improve working conditions

Good working conditions can play a significant role in an era of rapidly aging
societies as a means to keep the productivity of older workers through declining
working hours and the establishment of occupational health and safety
systems.For elderly individuals, extended work hours might have particularly
negative effects on their health and skill development. In order to protect senior
workers' physical and mental health and prevent workplace mishaps, all Korean
workers must work less hours. It is imperative that employers take a firm stand
in providing work environments that support the health of their employees,
particularly the elderly, and guard against occupational illnesses, accidents, and
stress. work. It is important to consider the emotional and physical well-being
of employees while creating a work environment that includes equipment,
 supplies, procedures, and scheduling. In collaboration with regional health
organizations, a system may be put in place to periodically check on the health
of the workforce, which would include older individuals. Furthermore, actions
should be done to implement financial sickness benefits and employer-paid sick
leave.
4. Provide flexible work
Employers and workers may both benefit from more flexible work arrangements,
which can increase productivity and labor market efficiency. More flexibility in
work schedule scheduling may be a better tactic in a business climate that is
changing quickly than modifying the workforce in terms of the numbers that
organizations can keep. Hire highly trained personnel and save money on
recruiting, firing, and skill development. Certain worker groups may also find
their ability to work improved, particularly those whose capacity to work long
hours or take care of their families is restricted by health issues. Flexible working
allows employees to pick when their workday begins and ends, or it can raise or
reduce regular working hours every three months while maintaining the same
regular working hours.

IV. CONCLUSION

The facts in South Korea's remarkably aging labor force is examined in this
essay. The article touches on a number of topics, including the burden on the
country's finances, the high reliance rate on the elderly, and the declining
working-age population. This appears to provide significant obstacles for a large
number of Korean enterprises, both domestically and internationally.

The country's most pertinent HR practices aim to improve the career skills of
older workers, as the working-age population is shrinking due to low birth rates.
Policies that support working conditions in tandem with government priorities are
crucial to keeping this age group employed. All things considered, one of the
most common issues facing many established and developing nations is an aging
labor force.
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