The Bank of Korea has confirmed that it created an employment outlook reflecting population decline and reported it to the Monetary Policy Committee last month. The purpose is to diagnose the employment situation more objectively. The Bank plans to disclose specific analysis results by next month at the latest.
According to ChosunBiz on the 23rd, the background of the Bank's development of employment indicators is rooted in the concern that the current employment statistics do not adequately reflect structural demographic changes. Despite the decrease in the economically active population due to aging, there is a lack of indicators in the market aside from the number of employed persons statistics announced monthly by the statistical office.
A Bank official noted, "Considering the demographic structure, it is difficult for the number of employed persons to increase as before," adding, "If this continues, even if the economy improves, there could be a situation where employment decreases, so we need indicators that reflect structural changes to communicate accurately with the market."
To respond to these structural changes, the Bank has been seeking a new analytical framework that can complement the limitations of existing employment indicators. In this process, they referenced a paper published in 2006 by Aaronson of the Federal Reserve, titled 'Implications of the Recent Decline in Labor Force Participation and Potential Labor Supply.'
This paper explained the trend of labor force participation rates since 2000 based on data from the Current Population Survey (CPS) of the Bureau of Labor Statistics (BLS), using three factors: age, time, and birth cohort. The analysis employed a 'Cohort-Based Participation Model' that shows trends of participation by specific cohorts in the labor market.
The analysis revealed that as the proportion of older population increased, downward pressure on the overall labor force participation rate grew, and the rate of increase in working hours also slowed. Structural factors, such as delays in youth labor market entry due to increased education duration and stagnation in female labor force participation since the late 1990s, also played a role.
The Bank reached similar conclusions to the Federal Reserve. As aging intensifies, labor force participation rates decrease, and the trend of increasing employed persons also slows down. Another Bank official said, "We plan to announce specific results by next month at the latest," adding, "We will also regularly update the numbers going forward."
This aligns with the 'Long-term Labor Supply and Demand Outlook' released by the Korea Employment Information Service in March. The service noted that the growth in the number of employed persons is expected to quickly slow due to a decrease in the economically active population. Specifically, last year’s increase of 160,000 employed persons is expected to reduce to 3,000 by 2028, and it is projected to turn negative starting in 2029 (-14,000). It is anticipated that the decrease will continue to expand, with an annual reduction of 48,000 employed persons by 2033.
The market positively evaluates the Bank's recent study. Moon Hong-cheol, a researcher at DB Financial Investment, said, "For those in their 20s and 30s, the number of employed persons is decreasing due to the effects of low birth rates, and the reality is that there is a lack of indicators reflecting this." He noted that this study appears to stem from a conscious effort to create indicators that better reflect the reality of employment.
Baek Yoon-min, a researcher at Kyobo Securities, commented, "While the objective figures such as the number of employed persons and the unemployment rate do not look bad, there are issues with demographic structure and declining productivity not being reflected." He added, "If we can understand the current state of the labor market a bit more clearly, policy support can change accordingly, which is positive."