South Korea challenges ahead - OCED

2012-04-26 09:01

Seoul - A rapidly ageing population and a widening income gap pose long-term challenges to South Korea despite its decade of strong growth, the OECD said on Thursday.

Experience showed that high growth was not enough in itself to tackle inequality and relative poverty, the Organisation for Economic Co-operation and Development said in a survey.

Asia's fourth biggest economy is performing well but must prepare for challenges that also include the cost of any reunification with North Korea, it said.

The economy grew 0.9% in January-March from October-December, its fastest expansion for a year on a quarterly basis, the country's central bank said on Thursday.

The OECD forecast growth of around 3.5% this year and said the fiscal position is strong.

Affordable childcare

But it stressed the need to boost the workforce as the working-age population starts falling from 2017 in a country with one of the world's lowest birth rates.

More women should be encouraged to work "by encouraging better work-life balance" and expanding affordable childcare, a move that would also increase the fertility rate.

The OECD added that workers who tend to leave firms at age 55 should be encouraged to stay on through more flexible wage systems and a move away from mandatory retirement.

The survey called on South Korea to improve productivity, which was only half the level in the advanced OECD countries, in part by improving the education system.

Early childhood education and care should be upgraded and the over-emphasis on tertiary education should be addressed, although the OECD acknowledged this was difficult in a society that stresses academic credentials.

University education had become the norm regardless of students' capabilities or career preferences, but in recent years only about half the graduates had found regular jobs.

The survey called for an upgrade of vocational training, moves to give poorer children better access to early education and care, and better university admission procedures to reduce reliance on private tutoring.

Growth prospects

The country built its post-war economic miracle on manufacturing for export, which helped it to become the world's largest shipbuilder and fifth largest carmaker.

But the survey said this had been at the expense of its services sector - the second smallest in the OECD - and called for greater competition and efforts to promote restructuring of small and medium-sized enterprises.

Growth prospects also depended on the success of the Green Growth Strategy in transforming the energy-intensive economy.

The OECD called for the speedy introduction of an emissions-trading scheme and also suggested targeted increases in social spending by expanding the earned income tax credit, among other measures.

Labour market "dualism" was a major source of inequality, with "non-regular" workers suffering significantly lower wages, precarious jobs, less social security coverage and less training.

Strict labour laws give "regular" workers greater protection against dismissal and better pay and benefits, while employers cope with labour market rigidity by hiring millions on a "non-regular" basis.

The OECD called for less job protection for regular workers and better social insurance coverage and expanded training for non-regulars.

- SAPA