South Korea's Aging Society
Could Burst Housing Bubble
By Kim So-hyun, The China Post
June 2, 2012
proportion of Korea's working age population could
burst a real estate market bubble and trigger a
financial crisis, a private think tank said in a
report released Sunday.
Hyundai Research Institute warned that Korea may
follow the footsteps of Spain and Ireland as the
country is now past its demographic window, the
period when the percentage of people able to work
is at its heights.
“We must be mindful of the possibility of a
property bubble burst as a sharp fall in the
proportion of working age population cuts demand
for real estate,” Lee Joon-yeop, an analyst at
HRI, said in the report titled “Time to prepare
for Demographic Bonus 2.0.”
“Japan, the U.S., Spain and Ireland all faced real
estate bubble bursts and financial crises amid
plummeting asset demands as the proportions of
working age population fell from their peaks.”
Korea has so far benefited from a demographic
bonus with a growing working age population —
people aged between 15 and 64 — offering more
potential for high economic growth as smaller
ratios of dependents to workers tend to boost
savings and investments in human capital. But not
anymore, the report said.
“Between 1966 and 2012, Korea enjoyed a
demographic bonus, in which the rising share of
working age population and the decreasing costs of
supporting dependents spurred economic growth,” it
“The proportion of the working age population
jumped from 54.9 percent in 1970 to 68.6 percent
in 1989 as baby boomers (born between 1955 and
1964) entered working age, greatly helping the
real GDP growth record an annual average of 9.3
percent (between 1970 and 1989).”
The percentage of the working-age population,
however, peaked at 73.1 percent this year and will
start to decrease from 2013, portending a steep
decline in potential economic growth, HRI said.
The research institute forecast that Korea's
potential growth rate would tumble to 1.7 percent
in the 2030s as the proportion of working age
population shrinks from 71.1 percent in 2020 to 57
percent in 2039.
“A deteriorating demographic structure is not the
direct cause of a financial crisis but could
provide the soil for one,” the report said.
The HRI suggested raising the employment rate to
extend the demographic bonus by hiring more senior
citizens, women and young people who are having
trouble finding jobs.
It also stressed the need to seek ways to make use
of foreign and North Korean labor, and devise
financial rules that reflect the demographic
Policies to encourage childbirth require
preparations from a long-term perspective as they
cost a lot of money and time, the report added.
Korea's population topped 50 million on Saturday,
making it the seventh country to join the ranks of
the “20-50 club,” nations with more than 50
million in population and US$20,000 in per capita
income. Others in the 20-50 club are Japan, the
U.S., France, Italy, Germany and Britain.
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