OECD Economic Surveys Korea

1 OECD Economic Surveys Korea May 2016 overview This overview is extracted from the Economic survey of Korea . The survey is published on the responsibility of the Economic and Development Review Committee (EDRC) of the OECD, which is charged with the examination of the Economic situation of member countries. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area OECD Economic Surveys : Korea OECD 2016 You can copy, download or print OECD content for your own use, and you can include excerpts from OECD publications, databases and multimedia products in your own documents, presentations, blogs, websites and teaching materials, provided that suitable acknowledgment of OECD as source and copyright owner is given.

2 All requests for public or commercial use and translation rights should be submitted to Requests for permission to photocopy portions of this material for public or commercial use shall be addressed directly to the Copyright Clearance Center (CCC) at or the Centre fran ais d exploitation du droit de copie (CFC) at 20th anniversary of Korea s accession to the OECDThis year, we celebrate the 20th anniversary of Korea s accession to the OECD. Korea s invitation to join theOrganisation represented the culmination of 35 years of extraordinary growth that transformed it from oneof the poorest nations in the world to a major industrial Korea , membership in the OECD has provided an opportunity to exchange ideas with the mostadvanced countries and to learn best practices.

3 The OECD has played a crucial role in developing andadvancing Korea during the past two decades. Moreover, the OECD is Korea s most trusted policy has seriously taken the OECD s recommendations and guidelines into account and reflected them in itseconomic its 20 years as an OECD member country, Korea has fulfilled its responsibilities and has been atthe forefront in sharing success stories and best practices with other member countries. For example, as thechair country of the Ministerial Council Meeting of OECD in 2009, Korea played a leading role in adopting theGreen Growth Initiatives. In 2010, Korea joined the OECD s Development Assistance Committee,transforming itself from a recipient to a donor nation. Moreover, in 2015, the OECD Committee for Scientificand Technological Policy held a ministerial-level meeting in Korea , the first time that it was held outside theOECD world economy is facing a prolonged period of low growth and low inflation, highlighting the needfor structural reform and increasing interest in policy areas such as social cohesion, environmental issues andregional policies.

4 The changing atmosphere calls for the OECD to play a bigger role in further promotingglobal policy responses to pressing issues. Korea is looking forward to further strengthening its collaborationand partnership with the OECD to promote the goal of better policies for better lives , thereby helping torealise the stable development of the world economy and enhance the quality of life in member Economic Surveys : Korea OECD 201611 Executive summary Korea is experiencing a spell of slower growth and low inflation Productivity is low due to large gaps between manufacturing and services, andlarge companies and SMEs Problems in the labour market raise inequality and poverty, and discourageemploymentEXECUTIVE SUMMARYOECD Economic Surveys : Korea OECD 201612 Korea is experiencing a spell of slower growth and low inflationReal output growth has slowedSource.

5 OECDA nalytical 2 growth slowed to a 2 per cent annual rateover 2011-15, still higher than the OECD average, whileinflation has remained below the central bank s export growth has been sluggish, the currentaccount surplus has risen to nearly 8% of GDP, reflectingweak domestic demand, falling oil prices and transitorydemographic trends. Robust residential investment is onebright spot, as the policy interest rate has been cut to arecord low. However, high household debt is constrainingprivate consumption, although it does not pose a systemicrisk to the financial system. Fiscal stimulus waseffectively used in 2015 to support growth. The fiscalsituation is sound, with the budget in surplus and thegovernment a net is low due to large gaps between manufacturing and services, and largecompanies and SMEsLabour productivity in services is low in KoreaSource: OECD National Accounts Database;OECD STI 2 productivity (output per worker) slowed toaround 1% over level of labour productivity inthe service sector is less than half of that inmanufacturing.

6 SME policy promotes the survival of smallfirms, rather than higher productivity, and very few growinto medium-sized firms. Venture capital investment hashad limited effectiveness in encouraging innovative start-up companies. Product market regulation is among themost stringent in the OECD area. The gains from Korea shigh level of investment in R&D are limited by structuralweaknesses in the innovation system. However, followingthe introduction of the Three-year Plan for EconomicInnovation in 2014, progress is being made, notably inregulatory reform and the R&D and venture in the labour market raise inequality and poverty, and discourageemploymentThe labour force will fall sharply at currentparticipation ratesSource: Statistics Korea ; OECD 2 labour market is segmented into regular andnon-regular workers, who earn only 62% as much per houras regular workers, boosting inequality and relativepoverty.

7 Women account for a disproportionate share ofnon-regular workers, thus discouraging femaleemployment. The employment rate of youth is one of thelowest in the OECD, while older workers are pushed out offirms at age 53 on average into low-quality jobs and self-employment. Short working lives contribute to a highelderly poverty rate. Due in part to policy efforts, theemployment rate is at a record high, reflecting the growthin female employment, and the elderly poverty rate Per cent (saar) KoreaOECD0102030405060708090100 % OECDKOREAA. Services shareof GDP0102030405060708090100 % OECDKOREAB. Services shareof employment0102030405060708090100 OECDKOREAC. Productivity relativeto manufacturing198019902000201020202030204 02050141618202224262830 Millions Constant participation ratesRising female participation ratesEXECUTIVE SUMMARYOECD Economic Surveys .

8 Korea OECD 201613 MAIN FINDINGSKEY RECOMMENDATIONSR aising productivityProduct market regulation is the fourth most stringentin the OECD, with adverse implications for competitionand the new cost-in, cost-out system to reduce theregulatory burden, based on accurate Regulatory ImpactAssessments, and phase out positive-list venture capital investment is rising, thanks inpart to public financing, its funding of start-ups venture capital on start-ups by facilitating early-stageIPOsintheKOSDAQandKONEX marketsandtaking further steps to jumpstart the M&A marketthrough regulatory of the R&D in Korea in 2014 was financed fromabroad and international co-authorship and co-patenting are among the lowest in the OECD. Only business-financed R&D is carried out in barriers to trade and investment to help firmsbetter connect to global innovation R&D links between academia, business andgovernment by promoting the mobility or policyKorea faces headwinds from weak overseas demandand sluggish domestic fiscal policy to sustain growth in 2016-17, whilesetting policy in a framework that ensures Korea s long-run fiscal employmentThe employment of women is constrained by thelimited take-up of maternity and parental leave and theavailability of high-quality childcare.

9 Career breaks forwomen widen the gender wage gap, which is thelargest in the the take-up of maternity and parental leavesystems by enforcing compliance and raising thebenefit level for parental leave. Enhance childcarequality by making accreditation mandatory andstrengthening youth (15-29) employment rate is one of the lowestin the OECD, while the share of NEETs (neither inemployment nor in education or training) is high,reflecting a high level of labour market Meister vocational schools and the Work-StudyDual System, thereby enhancing links between schoolsand firms, and basing curriculum on the NationalCompetency workers (50-64), whose skills are low compared toyoung workers, are pushed out of firms at an early age,forcing them into temporary jobs and the adoption of the wage peak system andexpand education for older persons with low social cohesionNon-regular workers earn only about half as much asregular workers per month, although their skill levelsare reported to be broadly down dualism by relaxing employmentprotection for regular workers and making it moretransparent, increasing the minimum wage andexpanding social insurance coverage and training fornon-regular in the OECD at , four times the OECD average of the Basic Pension on the elderly with the lowestincomes to reduce poverty.

10 Expand the coverage of theNational Pension Scheme to reduce poverty in the growth to improve the environmentThe amount of water taken from ground or surfacewater sources in Korea as a share of renewableresources was the third highest in the OECD in increased from around 16 000 in 2005 to morethan 20 000 in water pricing policies to increase efficiency byensuring that prices cover water supply costs, as well asby developing water supply and improving demandmanagement. Air pollution should be reduced, in part,by co-operation with other countries in the region andthrough appropriate Economic Economic Surveys : Korea 2016 OECD 201615 Assessment and recommendations Policies to end low growth and inflation are boosting the economy Raising productivity through innovation and structural reform Labour market reforms to promote inclusive growth and social cohesionASSESSMENT AND RECOMMENDATIONSOECD Economic Surveys : Korea OECD 201616 Korea has been one of the fastest growing OECD economies over the past 25 years,boosting its per capita income from 39% of the average of the top half of OECD countriesin 1991 to 75% by 2014.