‘Future of economy hinges on women’

Choi Byung-il, president and CEO of the Korea Economic Research Institute (KERI), gestures during a recent interview with The Korea Times at his office in Yeouido, Seoul.

Softening growth rates, collapsing consumer spending and a workforce aging dog years have been fueling apocalyptic talk about the future of Korea’s economy. So why amid the growing alarm over the unraveling of the Korean success model does the country permit itself to dramatically underutilize its highly-educated women, asks the head of a leading private think tank.

In a recent interview with The Korea Times, Choi Byung-il, president and CEO of the Korea Economic Research Institute (KERI), claimed that women could provide the country its next powerful engine of economic growth, if only for the reason that they have been so thoroughly wasted as an asset.

It remains to be seen whether they will be allowed to: Official figures show women in their 30s are dropping out of the labor market at an alarming rate and the lack of freedom in setting a work-life balance has been identified as the culprit.

The slew of government policies aimed at helping working mothers has yet to work as prescribed and it appears employers won’t budge until the moment they are forced to.

Choi, a Yale-educated economist who took the helm at KERI in December, stresses that the country can’t afford to be casual in its attempts to increase women’s shares in jobs. The country is facing a disastrous vortex of deteriorating family finances, a decaying job market and an increasingly top-heavy population structure, and its ineptitude in integrating women into the workforce is a factor that penetrates through all of these problems, he said.

“While the threats posed by low birthrates and a rapidly aging society are clearly urgent, it should also be reminded that there are no quick fixes and the country should approach these issues with an eye toward the fundamentals. Otherwise, we will continue our futile gestures of massaging the symptoms without getting anywhere near the disease,’’ Choi said.

“We already have an abundance of short-term policies out there that probably won’t make a difference. It’s crucial that we find a social system that really enables women to set a work-life balance and this means that the Korean corporate sector must depart from its old culture epitomized by long working hours.

“There must also be a shift in social habits and pressures, which has long pressed women to play the stay-at-home mom role. And the labor market must be flexible enough to soak up the women returning to work after giving birth. Needlessly to say, these are changes that would need time to take hold.’’

Korea’s working-age population is expected to enter a lengthy period of decline from 2017, according to government studies, and improving the low work participation rate of women is considered key to mitigating the fall in labor input.

Granted, there are clearly more Korean women with paid jobs than they were in the previous generation thanks to an eliminated education gap between the sexes. There seems to be just as many university degrees among women as men, and education authorities will say that girls are now doing better than boys at school.

Another factor has been the decline of manufacturing work, which has been coupled with an expansion in services sector jobs. This has reduced the demand for physical labor and helped put the sexes on a more equal footing.

However, when compared with other rich economies, Korea seems to have a long way to go in the economic empowerment of women.
Choi’s concerns over female employment were backed by a recent report by the Organization for Economic Cooperation and Development (OECD), which has Korea third lowest among its developed member states in work participation for women between the ages of 25 and 54.

Encouraging a better work-life balance and expanding the availability of high-quality and affordable childcare will be critical to prevent women from falling out of the workforce and also increase the country’s low fertility rate, said the Paris-based think tank.

Economic activity among women aged between 25 and 29 was measured at 69.8 percent in 2010, according to the latest available figures from Statistics Korea. However, the figure dropped dramatically to 54.6 percent for women aged between 30 and 34, the pressure of working long hours and a lack of maternity support is taking a toll on those with young children.

The pay gap between men and women also remains wide, so when couples discuss how they are going to afford childcare, it’s normally the wife who stays at home.

On average, a female employee earned less than 70 percent of what her male counterpart took home last year. And the employment statistics for women are padded by casual and precarious jobs to more of a degree than men, according to official job market statistics.

In recent years, government officials have introduced a series of family-friendly policies, such as expanding tax benefits, providing longer maternity leave and establishing more daycare places for children of working mothers. But the effects of such changes have been limited, thanks in part to a large number of companies reluctant to make significant changes to their working environment.

The Korea Employers Federation, an influential business lobby, went as far as to claim that the government efforts to boost births were putting too much pressure on the finances of firms, which may prevent them from hiring women.

“The problem with this country is that it takes a look at its alarmingly low birth rate and then throws all kinds of subsidies at it, hoping they will be enough to encourage women to have more children. But they won’t as long as they are forced to choose between a professional career and family life,’’ Choi said.

“This is a case where the long-term answer is provided from an immediate source ― if the corporate sector continues to fail to better take advantage of the glut of quality female talent that is already there, that could be the ruin of us. Women are continuing to leave the workforce after five to six years to raise children and this makes companies reluctant to invest in them. This depressing cycle has to be severed at some point.’’

Growth needs to come from service sector

Choi’s argument of women as the nation’s most underutilized resource came as he was trying to address the country’s sharp pullback in economic growth. A number of government and private institutions, including the Bank of Korea (BOK), have been announcing predictions in recent months that the country will enter a prolonged period of subdued growth. Choi says that the inevitable has already started to become reality.

KERI’s renewed economic forecast for this year’s growth in gross domestic product (GDP) is 3.2 percent, down 0.3 points from its previous prediction, on consumer price inflation of 3.5 percent. It projects the annual trade surplus at around $13.6 billion, visibly lower than the BOK’s $14.5 billion forecast.

GDP grew 3.6 percent in 2011, representing a significant shaving from 6.2 percent in 2010, as the country struggled to cope with a depressing combination of higher prices and slowing economic activity.

Most observers forecast Korea’s pace of economic expansion will likely hover around the low-to-mid 3s in the next few years. Choi claims that the argument should be not as much about whether Korea’s growth trajectory will flatten than as whether it can avoid a hard landing.

“I would say there are three important factors that determine the level of economic growth ― input, output and social policy. For Korea the crisis in input has been most profound: Among world economies, the country is aging the fastest, which puts a limit to the potential of what its labor force can do. It continues to do a mediocre job in inviting and encouraging capital investment, and we don’t have much to rely on in terms of natural resources,’’ he said.

“Of course, an economy can be offset by poor input if it manages to provide the efficiency to get the bang for its buck, but Korea doesn’t have this either. And it doesn’t help that there has been a lack of consistency in government policies and social systems, which have swayed left and right from one administration to another, and as I said earlier, the labor participation of women is too low.

“For Korea to beat predictions and post another run of impressive growth, it would be important to manage a breakthrough in social security systems, a meaningful improvement in the environment for business investment, and restore predictability in social policy.’’

The recent economic turmoil has painfully exposed Korea’s vulnerability as a one-trick export pony. The growth in exports has pulled back sharply in recent months, including a 1.4 percent decline in March, due to the worsening conditions in major markets like Europe, North America and China.

Consumers can’t pick up the slack when spiraling debt and stagnant wages have their finances decaying faster than week-old fish. And the massive gulf between the richest and poorest households appears to have cut an important recovery route for the economy.

To improve the long-term prospects of the economy, it’s critical that Korea finds a way to boost income more broadly to help small- and medium-sized businesses and inspire entrepreneurship. However, the country’s economic policy continues to cater toward big businesses that make ups its export machine.

Choi concurs that the country’s export-supportive policies have created a polarization between manufacturing and services. And the weak productivity in the non-tradable sectors is the main force that pulls back the growth in household income, he says.

“The country has ridden the heavy industry, chemicals and technology sectors hard enough and it needs a growth engine other than exports. What we desperately need is a service sector big bang, creating a formidable services industry that not only tailors to domestic customers, but also attracts the 300 million people across neighboring Asian countries. We have a long way to go, but a small number of markets, such as medical services, are already showing potential,’’ Choi said.

Deregulation is key for Korea’s services sector to enter its next phase of evolution, claimed Choi, as he attacked recent moves by policymakers to restrict the activity of large firms in grocery chains, eateries and other areas traditionally occupied by small merchants.

“Retail is a rare services segment where investment by big firms was active, and customers benefited greatly from this. However, other services are dominated by self-employed individuals, who have limited ability to employ or create new values that open new markets,’’ he said.

“Our services sector must go through its own process of corporatization. About 40 percent of the wholesalers, retailers, restaurant owners, and motel or inn owners are self-employed, compared to 10 percent in Germany, and this is a problem.’’ <Korea Times/Kim Tong-hyung>

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