2018 OECD Economic Surveys: Korea 2018

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Economic growth picked up in 2017, but reforms are needed to sustain Korea's convergence toward the income levels in the most advanced countries. Its labour productivity is only half of that in the top half of OECD countries, reflecting problems in the service sector. In addition, productivity in small and medium-sized enterprises (SMEs) in manufacturing is only one-third of that in large firms. The segmentation of the labour market between regular and non-regular workers has resulted in one of the highest levels of wage inequality among OECD countries. The employment rate of women is relatively low and the gender wage gap is the largest in the OECD. Korea faces the most rapid population ageing in the OECD area, which is projected to drive up government social spending from 10% of GDP to 26% by 2060. This Economic Survey of Korea assesses the country's recent macroeconomic performance and prospects. It also offers recommendations on how to achieve the government's objective of a paradigm shift from growth led by business groups (chaebols) to a greater role for SMEs and innovative start-ups through wide-ranging reforms to enhance competition, improve corporate governance, promote entrepreneurship and upgrade SME policies. This should be accompanied by labour market reforms to increase employment of women, youth and older persons and to break down dualism to achieve more inclusive growth.


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Enhancing dynamism in SMEs and entrepreneurship

Making SMEs and start-ups a driver of growth and job creation requires a number of policies to improve the performance of SMEs, whose labour productivity in the manufacturing sector has fallen to less than a third of that in large companies. The large-scale support for SMEs should shift from supporting the survival of firms to raising productivity. Measures to accelerate SMEs’ take-up of new technology and increase their participation in international trade would boost productivity and inclusive growth. Given the chronic labour shortages facing SMEs, reforming the education system to reduce labour market mismatch is a priority. Relaxing the regulatory burden and government control would allow innovative SMEs to create new products and services. Entrepreneurship is lagging, reflecting a higher fear of failure and a lack of skills. Upgrading entrepreneurship education and lowering the personal costs faced by entrepreneurs who fail would be beneficial. A greater role for venture capital, in part by activating the M&A market to allow investors to recuperate their funds, would encourage firm creation.



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