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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.

SPECIAL FEATURES: REFORMING THE LARGE BUSINESS GROUPS; ENHANCING DYNAMISM IN SMES

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Fiscal sustainability in the face of rapid population ageing

Korea’s population ageing, projected to be the fastest in the OECD, will have a significant fiscal impact due to increases in public pension benefits and expenditures on health and long-term care. This annex integrates long-term projections by the National Pension Research Institute (NPRI) and the National Assembly Budget Office (NABO) to illustrate the overall impact of population ageing on the general government financial balance. The conclusion is that government net debt would soar to nearly 200% of GDP by 2060 in the absence of other revenue increases.

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