Seoul (The Korea Herald/ANN) - The shrinking 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 US, 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 said.
¿The proportion of the working age population jumped from 54.9 per cent in 1970 to 68.6 per cent 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 per cent (between 1970 and 1989)."
The percentage of the working age population, however, peaked at 73.1 per cent 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 per cent in the 2030s as the proportion of working age population shrinks from 71.1 per cent in 2020 to 57 per cent 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 labour, and devise financial rules that reflect the demographic changes.
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 $20,000 in per capita income. Others in the 20-50 club are Japan, the US, France, Italy, Germany and Britain.