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KDI - Korea Development Institute

KDI - Korea Development Institute



Research Monograph Structural Reforms in Response to Demographic Changes in Korea December 31, 2020


Series No. 2020-08

Research Monograph KOR Structural Reforms in Response to Demographic Changes in Korea #Demographics #Fiscal Policy #Welfare Policy
DOI P-ISBN979-11-5932-673-8 E-ISBN979-11-5932-682-0

December 31, 2020

  • 프로필
    LEE, Tae Suk
  • KDI
    Duol KIM
  • KDI
    KIM, Dohyung
  • KDI
  • KDI
    Hojun Lee
  • KDI
  • KDI
    KIM, Jiwoon
  • 프로필
    HAN, Joseph
  • 프로필
    KIM, Hagsoo
  • KDI
    PARK, Yoonsoo
This study examines the demographic trends in Korea and explores various structural reform measures to cope with future demographic changes. After World War II and independence, the Korean population surged along with the rapid growth of its relatively young population, one of the strong drivers of economic growth. However, after unprecedented rapid economic growth due to rapid population growth, the Korean population structure will enter a period of rapid contraction, leading to rapid aging of the population and a decrease in the absolute population. Because these drastic demographic changes could affect the economic and social environment, the current system needs adjustment to mitigate negative demographic impacts before they appear. Therefore, this study aims to evaluate reform measures from various perspectives, focusing on improving the efficiency of human resource utilization and enhancing the sustainability of the government’s role. It also looks at supplementary policy measures that could reduce possible side effects of the reform process.

Part 1 presents structural reform measures to improve the efficiency of using older workers. In a situation where the total population, especially the working-age population, is declining, how efficiently the elderly population is utilized is an important policy issue. For the productive role of the elderly, the gradual and effective extension of the retirement age is required as an institutional prerequisite for the labor supply of the elderly. In addition, in the process of preparing an adequate old-age income security system, it is necessary to provide sufficient incentives for the elderly to participate in economic activities. Furthermore, the government should support the maintenance of labor productivity of the elderly through lifelong education and enhance the flexibility of the labor market so that companies can create demand for the elderly by reflecting the labor characteristics of the elderly.

Chapter 2 analyzes the effect of sequentially raising the retirement age by the revised 2013 Elderly Employment Promotion Act and shows that changes in the legal upper age limit have heterogeneous effects on employment according to age, gender, and education background. The analysis finds that the retirement rates of female high school graduates and male college graduates or higher degree holders, both aged 55 years old, rather were higher than before, after the implementation of the revision. This suggests that abrupt changes to the statutory retirement age may have unintended and undesirable side effects if the burden on companies is not thoroughly reviewed. In order to extend the tenure of senior workers effectively, this chapter proposes a comprehensive and gradual extension of the retirement age in consideration of the corporates’ burden.

Chapter 3 analyzes the impact of the relaxed 2015 earnings test in the national pension scheme. The analysis reveals that those groups with relaxed earnings testing tend to supply more labor, especially those with higher education levels to a statistically significant extent. Under the assumption of the public pension's fiscal sustainability and gradual increase of the pension age, these findings suggest that abolition of the earnings test may improve the work incentives of the elderly.

Chapter 4 analyzes the survey results on applicants to the Lifelong Education Voucher Program in 2019. According to the analysis, the voucher program effectively motivates participation in learning activities to a meaningful extent. However, active voucher users are different from the active applicants of the program support, so we need to consider better-targeted support to enhance policy effectiveness. Since the learning motives of basic livelihood support recipients and those in the next lower income class are relatively low, it is necessary to consider additional policy measures in addition to the small voucher incentives.

Chapter 5 analyzes the Korean workplace panel survey (WPS). According to the results, firms with a large share of older people in the workforce show the higher the portion of part-time workers, the higher the level of workforce productivity. On the contrary, the lower workforce productivity, if a labor union exists at such firms. The analysis also shows that operating profit decreases when the proportion of older workers in companies with a labor union increases. This may be because, given the current seniority-based wage structure, it is more difficult to dismiss or adjust the wages of older workers due to obligations to agree with the labor union in a situation where they are more likely to receive real wages than labor productivity. In addition, in the case of companies with a high proportion of part-time workers or replacement workers, overall labor productivity increases along with the proportion of older workers. In this sense, the flexible working system can be useful both individually and as a company to increase labor productivity and encourage companies to retain and hire older workers.

Part 2 examines structural reform measures for sustainable fiscal management. Fiscal spending on the aging population increases, but tax revenue may decrease due to a decrease in the working-age population, raising concerns about the government's fiscal sustainability due to the aging and decline of the population. Not only that, the decrease in the youth population may lead to a reduced supply of military forces, adding another layer of uncertainty for the national defense amid the long-standing tensions on the Korean peninsula. In order to achieve the policy goal of sustainable fiscal management, it is necessary to enhance the effectiveness of resource allocation continuously through efficient expenditure restructuring and to expand the tax base as a source of revenue to provide sufficient government resources.

Chapter 6 shows that when calculating the age of the elderly based on the remaining life expectancy, there is a possibility that the threshold age of the elderly could continuously increase by about one year over the next ten years. Considering the burden of disease and disability, gender, region, and income gap, we propose a long-term plan to gradually raise the threshold age of the elderly. A case analysis of the urban railroad senior fare discount system examines the policy considerations for such a long-term age adjustment plan. For the policy goal of securing mobility of the elderly, we propose to increase the age gradually, taking into account the demographic characteristics of the region, the elderly's usage behavior, and the degree of congestion. In addition, we can consider complementary policies such as supplementary transportation vouchers.

Chapter 7 underscores efficient public spending on education through a sensible teacher supply policy, as the overall population, together with the school-age population, will decline. If we train and hire teachers according to the existing teacher supply plan, we expect the class sizes to continue to shrink as the school-age population decreases. We find that a smaller class size improves the academic performance of some elementary and middle school students and has positive effects on elementary students' non-cognitive ability, but the magnitude of the positive effects is not significantly large. Given the recently disclosed number of teachers by age and the published target number of students per teacher, this suggests the possibility of hiring fewer new teachers without compromising the quality of education in the future.

Chapter 8 shows that it is necessary to consider the reforms of the local budget system in order to improve the fiscal sustainability and efficiency of local governments amid changing demographic trends. We anticipate that Korea's demographic challenges of aging and shrinking population will unfold unevenly by region. Against this backdrop, since local governments receive support for local education expenses as a fixed percentage of national tax revenues, the education spending per student will increase steeply and unevenly by region. Accordingly, we recommend revising the methods of allocating local education subsidies in consideration of the school-age population and the number of teachers by region. In the longer term, we propose to streamline local education subsidies and local government general budgets by consolidating them into a single category. This measure will help remove silos among different budget holders and enable comprehensive budgeting for local authorities, eventually securing fiscal efficiency and accountability at the local level.

Chapter 9 emphasizes the importance of military forces trained over an extended period. Because it is impossible to maintain the current large-scale military force due to population decline, it is necessary to reorganize military force from labor-intensive to capital-intensive. Through international comparative analysis, we show that the probability of choosing the volunteer military service system increases as the proportion of the working-age population decreases, and the probability of choosing the compulsory military service system increases as the number of experiences in conflict increases. Given the declining working-age population, the voluntary military service system may be a viable option. However, the confrontation with North Korea and the fairness of military service are obstacles to a full-scale voluntary system. Therefore, we suggest gradually shortening the period of military service to put the skills and talents of young people to productive use while maintaining the current conscription system. At the same time, we propose to devise a plan to gradually expand the training of professional military soldiers and extend the retirement age of senior officers.

Chapter 10 emphasizes the need to prepare a mid- to long-term tax policy to secure sufficient financial resources in response to changes in the social demand for fiscal spending driven by demographic changes and examines alternative financing methods with a focus on value-added tax (VAT). Compared to major countries, Korea’s income tax and VAT burdens are relatively low, and the VAT revenue base will shrink due to demographic changes, especially consumption patterns by age. This chapter proposes increasing the basic tax rate and abolishing some tax reductions to maintain the current VAT revenue. Considering the income distribution effect of the abolition of tax reductions, we propose abolishing the tax reductions for education, finance, and medical care as well as introducing and maintaining a reduced tax rate system for essential consumer goods and services for vulnerable groups, which can make the VAT less regressive. It is desirable to establish a reasonable system of tax reduction through social consensus along with an increase in the value-added tax rate.
요 약

제1장 인구구조 변화의 역사적 추이와 정책과제
 제1절 서 론
 제2절 인구 변천의 일반적 추이
 제3절 우리나라의 인구 변천
 제4절 인구구조 변화에 따른 정책과제와 대응방향

제1부 인적자원의 효율적 활용

제2장 고령층 노동시장의 현황 및 개선방향
 제1절 고령층 노동시장과 정책적 개입의 필요성
 제2절 고령층 노동시장: 현황과 추세
 제3절 정년 연장이 생애 주직장 퇴직, 재취업 및 근로소득에 미치는 효과
 제4절 결론 및 정책적 시사점

제3장 국민연금 소득심사제도와 고령층 노동공급
 제1절 머리말
 제2절 소득심사(earnings test)
 제3절 분석방법
 제4절 분석 결과
 제5절 정책적 함의
 부 록

제4장 평생학습바우처 지원의 효과와 시사점
 제1절 서 론
 제2절 해외 사례 및 선행연구
 제3절 제도적 배경
 제4절 실증분석
 제5절 시사점
 부 록

제5장 인구구조 변화에 대응한 생산성 제고 방안
 제1절 서 론
 제2절 선행연구 분석
 제3절 실증분석 1: OECD 국가패널 분석
 제4절 실증분석 2: 사업체패널조사 분석
 제5절 요약 및 정책적 시사점

제2부 지속가능한 정부의 역할 수행

제6장 노인복지정책의 연령 기준 조정방안
 제1절 문제제기
 제2절 노인복지사업 수급연령 현황
 제3절 기대수명 연장을 고려한 노인연령 자동조정방식
 제4절 사례분석: 교통시설 경로우대제도
 제5절 맺음말
 부 록

제7장 학령인구 감소와 초중등 교원수급정책
 제1절 서 론
 제2절 학령인구 감소와 주요 교육지표 추계
 제3절 학급규모와 학업성취도의 관계
 제4절 학급규모와 학교생활 및 비인지능력의 관계
 제5절 정책 검토
 제6절 맺음말
 부 록

제8장 인구구조 변화에 따른 지방재정 효율화 방안
 제1절 문제 제기 및 주요 현황
 제2절 고령화와 지방재정에 관한 실증분석
 제3절 지방교육재정 현황 분석
 제4절 정책제언

제9장 인구구조 변화와 국방인력 제도
 제1절 서 론
 제2절 환경적 요인
 제3절 저출산과 병역자원의 변화
 제4절 병역제도 선택모형
 제5절 병역제도의 선택
 제6절 결론 및 정책대안

제10장 대안적 재원 마련: 부가가치세를 중심으로
 제1절 서 론
 제2절 인구고령화와 장기재정여건 및 세수구조
 제3절 인구고령화와 부가가치세
 제4절 새로운 세원 발굴
 제5절 결 론
 부 록

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