■ Driven by a sharp increase in life expectancy, Korea’s average propensity to consume has declined over the past two decades, serving as a key factor behind the persistent lag in private consumption growth relative to overall economic growth.

- Despite longer life expectancy, the average retirement age from primary lifetime employment has remained largely unchanged, reinforcing precautionary saving that lowers the propensity to consume in anticipation of relatively lower and more uncertain income from secondary employment after retirement.

- The responsiveness to increased life expectancy is greater among older adults with shorter remaining life expectancy, as reflected in a marked decline in their propensity to consume.


■ Looking ahead, however, as the pace of increase in life expectancy moderates and the share of the oldest old (aged 75 and over) rises rapidly, the average propensity to consume is expected to rebound gradually.

- While life expectancy increased by approximately 6.5 years over the past two decades, it is projected to rise by only about 3.5 years over the next two decades, roughly half the previous increase.

- As low fertility persists and the share of older adults continues to rise rapidly, the working-age population is projected to contract, further dampening growth while slowly lifting the propensity to consume.

- Accordingly, the gap between private consumption growth and overall economic growth is expected to narrow gradually over time.

■ Since the two-decade decline in average propensity to consume reflects structural issues in Korea’s labor market, it is important to develop policy responses to address these challenges.

- Structural barriers to older adults' labor market participation should be removed to align retirement timing with rising life expectancy.

· The recent increase in labor market participation among some individuals in their 60s and older suggests the growing intent to remain in the workforce among older adults in response to rising life expectancy.

- To address structural barriers, policy efforts should focus on expanding labor demand for older workers by resolving labor market frictions, including reforming the seniority-based wage structure to bolster job responsibilities and performance-based pay, as well as promoting reemployment after mandatory retirement.

- Effectively leveraging the capabilities of the older workforce could help partially offset the downward pressure on potential growth resulting from low fertility and population aging.