1. Age of Great Transition: The Road Ahead for Korea
Alan B. Krueger
@Alan_Krueger
Princeton University
October 6, 2016

2. Overview
The world is at a turning point, and perhaps a precipice, when it comes to global governance, economic growth, monetary policy, globalization, aging, and climate change.
To some extent, the problems we face are a result of our success – if it weren’t for rapid economic growth and improvements in health, aging societies would not be a challenge.
We could end up on a path that supports growth, trade and sustainable economic development, or countries could turn inward (e.g., Brexit), subvert growth or worse.
Slow growth, inequality and unfairness of financial crisis created an environment susceptible to demagogues, protectionism and xenophobia in the West, but political system/leaders also failing.
Corporate leaders need to be aware of these developments, try to shape them for the good of their corporations, workers and customers, and prepare for alternative contingencies.

3. World Economic Outlook
U.S. Outlook: Recovery likely to continue at ~2% pace on strength of consumers & housing; labor market near full employment
European Outlook: Sluggish growth with occasional crises even if Brexit doesn’t cause an acute crisis
Asian Outlook: Growth slowdown in China, but probably not in India; stagnation or worse in Japan; solid growth elsewhere
African Outlook: Solid growth if corruption and political disorder don’t worsen
Longer Run Headwinds: Aging Western & Asian populations, climate change, inequality, productivity growth slowdown, backlash agains globalization

4. South Korea and U.S. Share Some Similar Problems
Slower Growth
Low inflation (but not deflation)
Productivity Growth Slowdown
Aging Populations
High Inequality/Dual Labor Markets
Decline in Dynamism
Too Many Idle Youth

5. Also Some Big Differences
Korean investment in education/human capital is world leader
Korean economy is much more dependent on exports, particularly to China and rest of Asia; U.S. less exposed to trade
Big generational gap in income in Korea
U.S. service sector and creative industries highly productive; Korea lags behind
U.S. historically a magnet for immigration

6. Overview of the U.S. Recovery

7. Trite but True: Recoveries Don’t Die of Old Age
More Data Less Data
       
Current Expansion 86 Months

8. U.S. Unemployment Rate is Returning to Normal
Note: Shading denotes recession.
Source: Bureau of Labor Statistics; National Bureau of Economic Research.

9. Decline in U.S. Labor Force Participation Rate Since 2007 is Mainly due to Population Aging and Past Trends
Note: Data for 1990 to 2015 have been revised to account for the effects of the annual population control adjustments to the Current Population Survey represents the average of data from January through August. Shading denotes recession.
Source: Bureau of Labor Statistics; National Bureau of Economic Research; author’s calculations.

10. U.S. GDP Growth Has Been Slowing Over Time
Demographics about 2/3rd of recent slowdown
Note: Shading denotes recession. Trend lines represent the average growth rate from a trough in the level of real GDP to the subsequent peak.
Source: Bureau of Economic Analysis; National Bureau of Economic Research; 2013 Economic Report of the President.

11. Why is U.S. GDP Growth So Slow in this Recovery?
About two-thirds of the slower GDP growth in this recovery compared to average post-war recovery is due to the trend slowdown in GDP growth, which in turn is due to demographics, lower capital investment and slower productivity growth.
The remaining one-third is due to cyclical factors unique to the Great Recession. Most importantly, fiscal drag, weak consumption growth, weak investment, zero lower bound on interest rates, and low consumer confidence and high uncertainty.
Still, the U.S. is recovering better than most other OECD countries that endured financial crises.

12. The U.S. Has Weathered the Recession Better than Europe
Note: Previous business cycle peak was 2007:Q4 for the United States, Ireland, and Iceland. Previous business cycle peak was 2008:Q2 for the Netherlands and Spain. Previous business cycle peak was 2008:Q1 for all other countries.
Source: Organisation for Economic Co-operation and Development.

13. Turn to South Korea Output Gap Per capita, PPP GDP
Source: International Monetary Fund.

14. Growth in Korea is Moderating

15. Service Sector Productivity is Low in Korea Services are 70% of Employment but only 60% of GDP

16. Korea will Go from 4th Youngest to 3rd Oldest Country in OECD by 2050

17. Aging Population is About to Hit Korea’s Labor Force

18. Overblown Immigration Fears: What Percentage of the population do you think are immigrants?
5.0x
3.7x
2.4x
Source: IPSOS, 2015.

19. Korea Has Largest Male-Female Wage Gap in OECD Gap is Especially Large for Older Women

20. Korea Has Longest Working Hours in OECD for Women and Second Longest for Men

21. Quality of Life in Korea is Low Given Level of Economic Development

22. Advice for Korean Corporations and Policymakers
Export/investment led growth model has taken Korea very far but the world is changing
Slower growth in exports will necessitate increase in domestic demand, improved services productivity (increased competition), health care sector growth, and development of creative economy
Raise quality of irregular employment sector (e.g., raise minimum wage and social insurance) to reduce inequality, support consumption, and reduce leverage
With aging tsunami about to hit, take steps to raise employment of women (parental leave time) and older workers, improve school-to-work transition, and recruit immigrants
Focus on quality of life (e.g., reduce work hours) as well as GDP
Business community should focus on long-run sustainability in time of transition, and prepare for a new economic environment