1. Trend job growth refers to the increase in employment consistent with maintaining the unemployment rate at its natural level. It is determined by labor supply factors, including the growth rate of the population aged 15 or older, labor force participation rate, and natural rate of unemployment.
2. This paper estimates trend job growth for South Korea and uses it as a benchmark to evaluate recent labor market conditions. It also projects the long-term slowdown in trend job growth and evaluates the economic impact of this deceleration.
3. South Korea’s trend job growth declined from about 400,000 persons per year during 2011-2015 to 190,000 per year in 2016-2019. Following the pandemic, trend job growth rebounded to an average of 320,000 per year during 2021-2024. This year, trend job growth is estimated to be in the upper 100-thousand range, reflecting a moderation of the previously upward trend of the labor force participation rate. The overall employment situation for this year is assessed as moderately weaker than trend.
4. On a long-term horizon, trend job growth is projected to slow gradually and start to decline around 2030. Following the initial fall, total employment is projected to keep contracting, reaching about 90% of its 2024 level by 2050.
5. As trend job growth shrinks due to population decline, the Korean economy may face significant challenges. From around 2030, as trend job growth starts to decline, labor input is expected to exert downward pressure on GDP growth. However, from around 2030, as the labor force participation rate begins to decline due to population aging, per capita GDP growth rate is expected to come under significant structural downward pressure. Expenditure on pensions and health as a percentage of GDP is projected to rise sharply, from around 10% in 2025 to approximately 20% by 2050, due to population aging and declining labor force participation. This will result in a significant increase in the support burden on households and the economy.
6. To mitigate the negative impact of slowing trend job growth caused by population decline and aging, it is essential to boost productivity and increase the labor force participation rate through comprehensive economic restructuring. Scenario analysis indicates that if structural reforms are successful and the labor force participation rate rises by 4%p above the baseline scenario by 2050— increasing at a rate comparable to the average annual increase observed over the past 10 years—the onset of employment decline could be delayed by about five years. As a result, the employment in 2050 would reach approximately 95% of the 2024 level. Additionally, per capita GDP is projected to rise by an annual average of 0.3%p, and the ratio of pension and medical expenditures to GDP is expected to decline by 1.3%p by 2050.