1. Progress towards inclusive growth in Korea

Abstract

Over the last thirty years, Korea has shown an impressive performance in catching up with the income levels of OECD best performers. Growth has, however, yet to translate into equal gains for all groups of Korean society. Affluent households have seen their living standards increase faster than those of the poorest and the middle class.This chapter assesses the main inclusive growth challenges in Korea, by applying the OECD Inclusive Growth Methodology, which consists of a Dashboard of 24 inclusive growth indicators and a framework for policy action on inclusive growth. After having analysed some of the recent measures enacted by the government to foster inclusive growth, the chapter suggests areas where additional efforts may be needed, particularly in better aligning pro-innovation and pro-productivity policies with policies for inclusion. The chapter also highlights the importance of building more space for engagement with stakeholders, which will be key for implementing policies effectively.

Introduction

A number of OECD countries have experienced an increase in income inequality and stalling social mobility in recent years (OECD, 2018[1]). This has gone hand in hand with a slowdown of productivity growth that has further hampered wage growth, especially for some categories of workers and firms. Korea has experienced similar trends and despite the impressive catching up with OECD economies over the last thirty years, it remains a country with a number of deeply rooted inequalities. Inequalities compromise future prosperity in a context where ageing and digitalisation are adding further social and economic pressures to the economy and the society.

Building on more than ten years of comprehensive research on the drivers and consequences of inequalities catalysed by the OECD Inclusive Growth initiative, this chapter assesses the main inclusive growth challenges in Korea. The chapter applies the OECD Inclusive Growth Methodology, which consists of an Inclusive Growth Dashboard and an Inclusive Growth Framework for Policy Action (see Box 1.1). The OECD defines inclusive growth as growth that is distributed fairly across society and creates opportunities for all. The IG Dashboard and Framework operationalise this definition, providing guidance on the key results that an inclusive growth model ought to achieve and on the best pathways for achieving those outcomes.

OECD research on inclusive growth has shown that the accumulation of disadvantages for certain societal groups can have adverse effects on the prosperity and well-being of all (OECD, 2015[2]; 2015[3]; 2011[4]; 2017[5]; 2015[6]), but also on productivity and economic growth (OECD, 2017[7]; Llena-Nozal, Martin and Murtin, 2019[8]). In addition, failures to address inequalities may lead to the erosion of the social contract, to social instability and to disengagement from politics (e.g. through low voter turnout) with direct consequences for the legitimacy of governments to set priorities and implement policies (OECD, 2018[1]).This is why action to address inequalities is urgent and the ambition of the current Korean administration to make the economy working to the benefits of all is timely and appropriate.

After having analysed some of the recent measures enacted by the government to foster inclusive growth through the prism of the OECD Framework for Policy Action on Inclusive Growth, the chapter suggests areas whether additional efforts may be needed, particularly in terms of better aligning pro-innovation and pro-productivity policies with policies for better inclusion. The chapter also highlights the importance of building more space for engagement and consultation with stakeholders, which will be key for implementing policies effectively.

Box 1.1. What does inclusive growth imply? The OECD Framework for Policy Action on Inclusive Growth

Since 1960, when the OECD foundations were laid down, the OECD recipe for sustainable growth has always been about improving the overall well-being for all, not just the few. The last crises highlighted the need for an economy that can fully deliver for citizens, address the issue of rising inequality both in terms of present outcomes and of future opportunities for the next generations and restore trust in the action of government. These principles are front and center in the OECD Secretary-General’s 21 for 21 Agenda for “putting people at the center of policy”, defining inclusive growth as:

Inclusive growth is about economic growth that is distributed fairly across society and that creates opportunities for all. This fundamentally changes the conversation – from one that focuses on efficiency of growth to the one that looks at what could be done in terms of equity to ensure equal opportunities in the first place.

At the 2017 OECD Ministerial Council Meeting, ministers of OECD member countries stated that growth should be strong, sustainable, balanced and inclusive. Ministers asked the OECD to work through its committees and relevant bodies on the development of a Framework for Policy Action on Inclusive Growth for the 2018 Ministerial Council Meeting, and to document inequalities of income and opportunities through a comprehensive evidence-based analysis [C/MIN(2017)9/FINAL].

The OECD dashboard of Inclusive Growth Indicators is organised around four categories:

1. Growth and ensuring equitable sharing of benefits from growth
2. Inclusive and well-functioning markets
3. Equal opportunities and foundations of future prosperity
4. Governance

See further details on the dashboard in Annex 1.A.

The OECD Framework for Policy Action on Inclusive Growth aims to help governments sustain and better share the benefits from economic growth. Supported by a dashboard of indicators to monitor trends on growth and inclusiveness, the Framework identifies possible policy responses that can improve outcomes in terms of inclusive growth. It builds on a range of OECD strategies and projects, including the Jobs Strategy, Skills Strategy, Innovation Strategy, Going for Growth Strategy, Going Digital project and Green Growth Strategy, among others. Moreover, it is extensively supported by the analysis set out in Part II of the present report.

The Framework highlights three key dynamics that policies can help to catalyse, that illustrates the main building blocks of policy action to sustain and more equitably share the gains of economic growth by: (1) Investing in people and places that have been left behind, (2) Supporting business dynamism and inclusive labour markets, and (3) Building efficient and responsive governments.

Figure 1.1. The Framework of Policy Action on Inclusive Growth

Inclusive growth trends in Korea

Sharing equitably the fruits of growth

Recently surpassing the USD 30 000 per-capita income threshold, Korea’s GDP per capita has increased from 6% of OECD average in 1970 to 97% in 2019 (OECD, 2019[10]). Capitalising on a well-educated population and an innovative manufacturing sector, GDP per capita grew in Korea more than on average in the OECD after the global financial crisis.

Growth has yet to translate into equal gains for all groups of Korean society, however. Affluent households have seen their living standards and wealth increase faster than those of the poorest and the middle class. As observed in a number of other OECD economies, in Korea, the incomes and wealth of the rich grew before and after the Great recession. Between 2007 and 2014, the income share of the richest 1% rose from 7.5% to 11.2% in Korea (OECD, 2018[1]). No more recent data are available on a comparable basis, suggesting that additional statistical efforts should be made for tracking income distribution at the top on an internationally comparable level.

When looking at all population groups, income inequality 1 has remained stable and above the OECD average: between 2015 and 2017 the gap between the top and bottom 20% income earners increased from 6.9 to 7 in Korea, and from 4 to 5 in the OECD on average (Figure 1.2). In 2016 the bottom 40% held 6% of all assets, which is more than in the OECD on average (2.5%). Non-material wellbeing has improved in some areas. Since 1970, life expectancy has increased by 20 years, the second largest increase in the OECD (OECD, 2017[11]). In 2018, life expectancy was 82.7 years, 1.9 years above the OECD average, up from 80.2 in 2010.

In the context of the COVID-19 pandemic, effective measures to contain the spread of COVID-19 have limited the estimated fall in GDP to just over 1% in 2020, the smallest decline in the OECD. Growth is expected to pick up to about 3% in 2021 and 2022. Global GDP was projected to contract by 4.2% in 2020 and grow by 4.2% in 2021 and 3.7% in 2022 (OECD, 2020[12]).

The emergence and intensification of trade tensions in 2018-19 has weighed on investment in Korea (OECD, 2019[13]). At the same time, growth has come with high pollution and resource consumption in Korea where high population density exacerbated environmental challenges (OECD, 2017[14]; Islam, 2015[15]). For example, outdoor air pollution contributed to 347 deaths per million inhabitants in 2017, up from 329 in 2011.

Poverty, despite a decline in recent years, remains above the OECD average, and is especially high among the elderly: with 45.7% of people above 65 living in relative poverty compared to the OECD average of 12.9% (OECD, 2018[16]).

Figure 1.2. Korea and OECD trends by indicator: Growth and ensuring equitable sharing of benefits from growth

Equal opportunities and foundations of future prosperity

The picture on equal opportunities and social mobility is mixed in Korea. On the one hand, it would take a child born into a low-income family about five generations – or up to 150 years – to reach the average level of income in Korea, compared to the OECD average of 4.5 generations (OECD, 2018[18]). On the other, nearly 50% of children are now starting off their careers in a higher occupational class than their parents (OECD, 2018[18]).

Social mobility partly depends on educational opportunities and Korea does well on average, although in some aspects the picture has become less favourable. In 2018, 11% of the variation in mathematics performance in the Programme for International Student Assessment (PISA) was explained by socio-economic status in Korea, compared to 14% on average across the OECD countries. In PISA science performance, 8% of variation was explained by the socio-economic status in 2018, lower than in the OECD and seeing a 2.1% decline since 2015. However, the performance gap in reading between socio-economically advantaged and disadvantaged students in Korea increased from 69 score points in 2009 to 75 score points in 2018, while remaining below the OECD average of 89 score points (OECD, 2019[19]). Korea is also above the OECD average in the resilience of students. In 2018, the rate for disadvantaged students who scored in the top quarter of reading performance was the fifth highest in the OECD after Estonia, Turkey, United Kingdom and Canada. Overall, Korea ranked among top OECD PISA performers and mean scores in reading, mathematics and science in 2018 were close to the level observed in 2015 (OECD, 2019[20]).

Considerable investment by government to enhance the accessibility of early childhood education and care (ECEC) has helped to increase enrolment by 18.1 percentage points between 2010 and 2017, from 38.2% to 56.3% (Figure 1.3), outpacing the increase in enrolment in any other OECD country in this period. Despite increasing levels of public spending in education, annual average tuition fees are still above the OECD average in Korea, both in public and private institutions. Private expenditure on primary through tertiary education ranked as the 6th highest in the OECD in 2015. This puts children with lower socio-economic backgrounds at a disadvantage.

The proportion of young people neither in education, employment nor training (NEET) is 18.4%2 (OECD, 2019[21]), which is high compared to the OECD average and has increased slightly in recent years (Figure 1.3). Overall, 4.4% of Korean civilian youth aged 15-29 were enrolled in some form of informal education or university or company entry exam preparation in 2017 as their primary activity. In line with OECD NEET’s definition, these young people are considered NEETs. Excluding these youth would imply a drop in the overall NEET rate from 18.4% to 14.1%, close to the OECD average (OECD, 2019[22]).

Figure 1.3. Korea and OECD trends by indicator: Equal opportunities and foundations of future prosperity

Understanding the drivers of inequalities through the Productivity-Inclusiveness Nexus

OECD work on the Productivity-Inclusiveness Nexus (OECD, 2018[26]) has shown that in a number of OECD countries inequalities across firms and wages results from a “sorting” effect that separates frontier firms (and their workers), which are able to access the best technologies and skills, from those that are less productive and fail to compete on the same grounds.

There are indications that the previous growth model in Korea has followed this trend (see chapter 3 for a detailed analysis), giving rise to significant productivity gaps among firms, particularly between manufacturing and services firms as well as between large and small firms (OECD, 2018[16]). In Korea, labour productivity is 40% lower in service SMEs than in large manufacturing firms, as compared to 20% in other OECD countries. These productivity gaps are mirrored in disparities between the wage and productivity levels of their workers. Productivity in SMEs in manufacturing has fallen to less than one-third of that in large firms (OECD, 2018[16]). Real value added per worker in SMEs is only 29% relative to large firms. The growing productivity gaps between frontier firms and the rest are mirrored in disparities in wage levels across the OECD. Building efficient and responsive governmentsLike in a number of OECD countries, in Korea labour productivity growth and median wage growth have decoupled (Figure 1.4).

Figure 1.4. Intertwined challenges in the labour and product markets

Productivity disparities had a negative overall effect on the speed of productivity growth, which decelerated in the 2011-17 period as compared to the pre-crisis period, while still remaining above the OECD average for the selected peer countries. The level of labour productivity (GDP per hour worker, expressed in USD, current prices and current PPPs) – at 37 in 2017 – remained significantly below the OECD average of 54.7 (Figure 1.5) (OECD, 2019[29]). The employment to population ratio is above the OECD average and has been improving in recent years. However, the IG dashboard (Figure 1.7) shows that the labour market could perform better by sharing the benefits of growth more evenly across workers. Though improving markedly compared to the previous period, the earnings dispersion 3 between the top 10% and the bottom 10% at a ratio of 4.3 in 2017 was higher than in the OECD on average (3.3 times) and higher than in any of the peer countries (Annex 1.A).

Among the factors accounting for subdued productivity growth is an insufficiently dynamic business environment. The OECD has shown that a dynamic business environment is necessary to ensure on the one hand broad-based innovation and productivity growth and on the other that wage growth is aligned with labour productivity (see Chapter 3). The Korean business environment appears very dynamic at first sight as the share of young firms is significantly larger in Korea than in other OECD countries. The start-up ratio is particularly high among small firms. The business environment is also characterised by relatively important flows of job creation and destruction, in particular among small firms. Yet, this apparent dynamism hides large impediments to scaling-up. The survival share of entrants is very low by OECD standards. Small entrants, which account for most job creation, grow much less than in other OECD countries. In the market services sector, only 2.5% of entrants with fewer than 10 employees grow, compared to 6% in other OECD countries on average. Such characterisation of doing business in Korea (high start-up ratio but little scaling-up) points to an environment that is particularly unconducive to sustainable entrepreneurship and growth. This contributes to perpetuating productivity and wage gaps between large conglomerates and the rest of the economy, and hence to the concentration of productivity gains in a small part of the workforce.

Technology diffusion has also been uneven – while virtually all Korean companies have broadband access, and many of them use basic ICT tools such as website and enterprise resource planning (ERP) software, they tend to lag behind in terms of other key tools, such as consumer relationship management (CRM) support, cloud computing, e-sales or big data. For example, in Korea on average, only 17.2% of businesses use cloud computing services in 2018, as compared to 32.1% in the OECD (see Figure 1.7).

Dualisms and disparities across firms go hand in hand with dualisms and disparities in labour markets. In Korea, non-regular workers do not enjoy the same pay, guarantees or upskilling opportunities as regular workers. For example, non-regular workers earn approximately one-third less than regular workers, although their skills are reported to be comparable. Only 70.8% of non-regular workers are covered by employment insurance. Temporary workers earn less than 60% of the hourly wage of a standard worker (OECD, 2015[3]). Both men and women in temporary employment have lower probabilities of moving into standard employment than the unemployed (OECD, 2015[3]).

In addition in Korea there are limited prospects for youth, women and older workers, who are disproportionately employed in small service firms and/or have non-regular status. While there can be certain benefits to non-regular employment (e.g. more flexibility, better work-life balance), nearly half of part-time workers noted that they accepted non-regular employment because of the lack of alternatives (Statistics Korea, 2018[31]) see Chapter 2 for details. According to KOSIS (Korean Statistical Information Service) Economically Active Population Survey, in 2017, women accounted for 41% of the active population, with 23 percentage points corresponding to employment in small services firms and only 1 percentage point in large manufacturing firms. The pattern is similar for elder workers, whose participation rate was 37% in 2017 with 21 percentage points corresponding to employment in small services firms and only 1 percentage point in large manufacturing firms. 5.8% of regular workers are over the age of 60, while for non-regular workers the share is 25%. Also Korean women and youth are more likely than men to hold non-regular jobs, a pattern similar to many other OECD countries.

Regardless of their specific employment status, labour market outcomes of women are significantly worse than those of men. Despite some progress in reducing the gender gap, Korea’s performance is still among the weakest in the OECD at 32.5% in 2019, compared to the OECD average of 13.0 in 2018% (Figure 1.6). Each percentage point in this gap represents missed opportunities and wasted potential for each person, and collectively for the economy.

Figure 1.6. The wage gap between men and women is sizeable and is diminishing very slowly

The large gender pay gap in Korea is mirrored in a sizeable participation gap reaching 20.8 percentage points in 2018 (participation rate for men is 73.7% and is 52.9% for women), which was the fourth largest in the OECD after Turkey (38.5 percentage points), Mexico (33.9 percentage points) and Chile (21.5 percentage points) (OECD, 2019[32]).

Figure 1.7. Korea and OECD trends by indicator: Inclusive and well-functioning markets

Building efficient and responsive governments

Korea has developed well-functioning public institutions to secure transparent and inclusive governance. Korea is, for example, the only country that has mandated all local governments to adopt a participatory budgeting system (Kim, 2018[36]). In 2015, Korea scored above the OECD average in stakeholder engagement for developing regulations and regulatory impact assessment in the OECD indicators of regulatory policy and governance (Figure 1.8). It scored around the average for ex post evaluation of regulations (OECD, 2015[37]). It scored around the average for ex post evaluation of regulations.

The participation rates in the 2016 presidential elections were above the OECD average; voter turnout shows an upward trend from 63% in 2008 to 77% in the most recent presidential elections. In the OECD on average, voter turnout has been relatively stable at 68% in 2011 and 2018. A few countries, however, have seen sizeable differences in voter turnout over the past decade. Japan, for example, saw a 16 percentage point drop in voter turnout between 2008 (69%) and 2016 (53%).

Women’s participation in politics, measured as the proportion of female parliamentarians in the national legislator is low when compared to the OECD average and is the fourth lowest in the OECD after Chile, Hungary and Japan.

Figure 1.8. Korea and OECD trends by indicator: Responsive and efficient governance

Megatrends are shaping challenges and opportunities for inclusive growth tomorrow

Global megatrends, notably digitalisation, ageing and demographic change, climate change and global integration represent a new set of opportunities to revive the Korean economy and make it work for all its people, as analysed by Chapter 2 and 3 of this review. For example, the OECD estimates that the share of jobs at high risk of automation, (i.e. those with a probability of being automated of at least 70%) is around 14%, on average, across the OECD and 10% in Korea. A further 33% of jobs in Korea (32% on average across the OECD) will go through a significant transformation. The risk of automation is higher among low-skilled workers; and the low-skilled are also less likely to participate in training. In Korea, the difference in training participation between the high-skilled and low-skilled adults is almost 48 percentage points (OECD, 2019[39]).

As a result of longer life expectancy and low fertility rates (1.05 children per woman in 2017 (OECD, 2019[40]), Korea is further experiencing population ageing, which is expected to continue in the long-term. The demographic change in Korea is so rapid that its population is expected to go from the fourth youngest in the OECD in 2012 to the third oldest by 2050 (OECD, 2016[41]). The share of the population older than 65 years is expected to increase from 14% to 30% in the next 20 years. Similarly, the elderly dependency ratio (percentage ratio of over 65 years old and the 15-64-year-old population) is expected to rise from 18% to 72% in 2014-50, which is the highest growth rate among all OECD countries. The working age population between 15 and 64 years of age started to decline in 2017 and is expected to decline by 15% between 2010 and 2040 (OECD, 2018[42]). In addition, the share of immigrants in Korea’s employment has more than doubled in the past decade, although still relatively low at 3.6% in 2015.

The nature of globalisation is changing, in particular in terms of reorganisations of Global Value Chains (GVCs). Among the G20 Economies, Korea has the highest GVC participation 4 and it is an important hub in global production networks (Criscuolo and Timmis, 2018[43]), however, mostly through its most productive manufacturing firms in a limited set of industries. Future expansion through GVCs for Korea may depend crucially on its ability to review its service sector and rebalance participation in GVCs from manufacturing to services. In the digital era, manufacturing firms rely more and more on services to generate income (servitisation 5, mass customisation and importance of knowledge-based services for innovation).

A vision for an innovative and inclusive nation

The trajectory of Korea’s policy developments towards inclusive growth

Up until the early 1990s, the Korean economy experienced improvements in terms of more equitable growth as the nation moved towards democratization and industrialization. Even though growth slowed down and income inequality started to widen, especially after the Asian financial crisis and exacerbated by the 2008 financial crisis, Korea’s per capita GDP reached USD 30 000 in 2018.

Against this attainment, the Korean economy has come to face a set of global and domestic challenges, including the global slowdown in economic growth and trade, in light of trade measures (including tensions, for example, between Korea’s key trade partners the US and China). The global economic growth rate has decreased from an average of 3.5% in 2000-07 to 2.8% in 2011-17, and world trade has declined sharply from 7.3% to 4.0% during the same period (OECD, 2020[44]).

Domestically, structural issues such as worsening distribution and weakening growth momentum stood in the way. Tackling these issues has been difficult, coupled with adverse demographic changes including rapidly aging population and low birth-rate – and a need for improving the quality of life on par with Korea’s economic growth.6

In the face of these socio-economic challenges, past administrations have responded with active policy measures moving away from growth-first policies. The Roh Moo-Hyun administration (2003-08) introduced a policy roadmap titled “Vision 2030”7 aimed at equitable and shared development. The two successive administrations, thereafter, focused on creating jobs and future growth engines.8 Despite pre-emptively recognizing the problems of low growth, income polarization, and employment instability, and thus putting forth policy actions in response, more proactive efforts were necessary to tackle the challenges.

The current administration is putting inclusive growth in the spotlight

The administration of President Moon Jae-in has since 2017 introduced the vision for an Innovative and Inclusive State to bring inclusive growth at the front and center of government policies in Korea with the aim to improve the quality of life of the general public via three pillars: income-led growth, innovation-driven growth, and fair economy.

1. “Income-led growth” laying the foundation for sustainable growth through the creation of jobs, income support for vulnerable groups, the expansion of social safety nets, and the reduction of core living expenses.
2. ”Innovation-driven growth” aimed at building the groundwork for innovation by upgrading major existing industries, creating new promising industries, and reforming regulations.
3. “Fair economy” highlighting the creation of a healthy market economy by improving corporate governance and constructing mutually beneficial, cooperative inter-firm relationships, especially between large firms and SMEs.

The pillar on innovation-led growth (Table 1.1) strives to boost Korea’s R&D capacities and competitiveness in key industries along three key areas of action: strategic investment in selected industries, innovation in the regulatory system and the creation of venture and start-up ecosystem.

The pillar on inclusive, fair economy (Table 1.2) aims to lift the income and purchasing power of the low- and middle-income population. It seeks to deliver inclusive growth by strengthening social safety nets and creating opportunities. Social spending is scheduled to rise at a 9% annual rate over 2017-21, boosting its share to 27% of central government spending (OECD, 2019[45]). The government aspires to achieving a decent life for all by 2022, ensuring dignity at every stage of life through stronger safety nets, investment in people and skills, improved job quality, as well as a more inclusive financial system.

Getting ready for the future of work by addressing labour market dualisms and social protection as part of the administration’s pillar on inclusive growth

The current administration highlights four priorities for policy action on inclusiveness: (i) job creation and improvements to job quality, (ii) lowering living expenses (e.g. in education, health and care), (iii) boosting household income, and (iv) the expansion of the social safety net (Table 1.1). Progress was made in converting jobs into permanent ones, with 593 000 permanent jobs added year-on-year, the largest increase since February 2014. In 2020, the administration maintained the focus on employment growth and industrial restructuring for the future (MOEF, 2019[46]).

In particular, the key policy directions to enhance inclusiveness are the following. To stabilize workers’ living conditions and reduce the wage gap, the minimum wage was increased by 27.3 %p during 2018-19, meeting the OECD average. A 52-hour work week was implemented to resolve customary practices of long working hours, and policies were gradually introduced by company size to alleviate the burden caused by the reduction of working hours (Statistics Korea, 2020[47]).

The unemployment benefit was raised from 50% to 60% of the average wage, along with an extension of the payment period from 90-240 days to 120-270 days. For low-income and young groups of population not covered by the existing employment safety net, the National Employment Support System provided services; such as job search counselling and KOR 500 000 per month for 6 months (Statistics Korea, 2020[47]). Furthermore, an amendment to the Employment Insurance Act has been planned to include the currently marginalized “dependent workers under special employment relationships” such as home-visit tutors, insurance salespersons and artists. In the long-term, the coverage is envisioned to be expanded to all workers including the self-employed. Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) have eased age and income requirements and increased the payment amount.

Table 1.1 Policies under the inclusive growth pillar
Main policy direction	Major supporting measures implemented during 2017-19
Job creation and quality	Expansion of private job creation through tax incentives for employing groups underrepresented in the labour market (youth, women) and for conversion of non-regular to regular employees Job creation in the public sector, conversion of non-regular workers into regular workers Financial incentives for SMEs to hire youth and an asset formation scheme to encourage youth to work in SMEs Reduction of working hours from 68 to 52 per week (40 regular hours plus 12 overtime hours)
Reduction of living expenses	Reduction of medical expenses through improved health insurance coverage and reduction of out of pocket expenditures Reduction of care costs for the elderly Lower education costs through introduction of free high school education and support for higher education to low income families
Increase in household income	Increase in the minimum wage with support to SMEs Expansion of the use of the Earned Income Tax Credit (EITC) and the Child Tax Credit Social insurance support
Expansion of social safety net	Extension of the Unemployment Benefit Guarantee Enhancement of Employment Insurance Coverage Introduction of the National Employment Support System Relaxed requirements for Supporting Basic Livelihoods Introduction and extension of the childcare allowance Expansion of the coverage and increase of the rate of the Basic Pension
Source: Table contents derived from compilation provided by the Ministry of Economy and Finance of Korea.

In order to support low-income groups, basic pension (paid to the elderly in the bottom 40% of the income bracket) and disability benefits have been expanded from KOR 250 000 to KOR 300 000 per month. Child allowances have also been extended to all households with children under the age of 7 – originally available only to those in the bottom 90% income group with children under the age of 6.

Additionally, reduction of key living expenses was accomplished by abolishing elective medical expenses, widening the health insurance coverage rate from 62.7% to 63.8% (2017-18), and free high school education has been considered for introduction in stages by 2021. As for housing costs, 1.05 million public housing units were planned in the period of 2018-22, of which 429 000 units have already been supplied (Statistics Korea, 2020[47]).

In order to continue the momentum on improving inclusiveness in the Korean society, the government put focus on improving economic and social participation of vulnerable groups through, for example, childcare and education support as well as provision of strong employment and social safety net. The opportunity to receive fair and equal education, regardless of the child’s socioeconomic background, is considered important as it creates a level playing field in the future. To this end, the government aims to strengthen the existing public education and childcare system and cater education programs and policies specific to children with disabilities. Moreover, besides the conventional route to employment of attending university, job-seeking as a high school graduate is being supported with appropriate career guidance and training programs.

In the context of employment safety nets are required to bridge the gap in the labour market. Some key measures may include expanding the coverage of social and employment insurance to protect new forms of workers such as freelance and platform workers, and strengthening vocational training for vulnerable populations such as youth, women, and the elderly. A secure social safety net is also important for marginalized groups; for example, such as social benefits under the “National Basic Living Security Act” to ensure a minimum standard of living for the low-income class, the elderly, and the disabled – as well as ongoing government’s efforts to improve the quality of public health care and to close the regional gap in access to medical care.

Supporting business dynamism with the administration’s innovation policy package

The pillar on innovation aims to boost Korea’s R&D capacities and competitiveness in key industries along three key areas of action: strategic investment in selected industries, innovation in the regulatory system and the creation of an ecosystem that nurtures start-ups and entrepreneurship (Table 1.2). In the second half of 2019, government efforts concentrated on boosting the economy, restructuring industries and promoting inclusive growth (MOEF, 2019[48]).

Table 1.2 Policies under the innovation-driven growth pillar
Main policy direction	Major supporting measures implemented during 2017-19
Strategic investment in selected industries	Boost in the R&D budget Investment in 3+1 strategic areas – data, artificial intelligence (AI), hydrogen economy + human resources development Support to eight key industries: future cars, bio health, smart industry industrial complex, fintech, new energy industry, smart cities, smart farms and drones
Innovation in the regulatory system	Introduction of a regulatory sandbox and Regulation-Free Special Zones providing an opportunity to test and verify new technology and services for a certain period before applying regulation Introduction of a negative listing system
Creation of venture and start-up ecosystem	Tax reductions and exemptions for start-ups Creation of shared industrial facility for start-ups (with production equipment such as 3D printing) Expansion of commercialisation support Support to SMEs, e.g. low interest rate loans for small businesses and self-employed workers Extension of the application of Small Business Start-up Support Act to all industries, including services
Source: Table contents derived from compilation provided by the Ministry of Economy and Finance of Korea.

Although the present government gives priority on inclusiveness measures, significant policy efforts have been also made to foster innovation. These include supporting firms during the entire cycleof entrepreneurship, introduction of regulatory sandbox, increased guarantees for angel investment 9, establishment of big data platforms and clusters in thematic areas 10, and extended funding for BIG3 11 industries. To promote fair competition in the private sector, cross-shareholding of large conglomerates was reduced and a win-win cooperation fund between large firms and SMEs was further expanded.

In July 2020, the government announced the Korean New Deal – composing of the Digital New Deal and Green New Deal with stronger safety nets – to transform the economy from a fast follower to a leader, from a carbon-dependent economy to a green economy. It aims to promote digital transformation of the manufacturing industry by establishing data and network infrastructure, and facilitate the transition into a low-carbon and green economy by strengthening the competitiveness of eco-friendly industries such as eco-friendly vehicles, energy generation, and other technologies. A total of KOR 6.3 trillion worth of investment is expected to be made over 2020, and finally by 2025 a total of KOR 160.0 trillion (accumulated) is expected to be invested. A total of 1.9 million jobs is expected to be created during this period (Statistics Korea, 2020[47]).

Main achievements

The current vision for an Innovative and Inclusive State differs from past administrations in that it overcomes the legacy of growth-biased policies and strongly promotes harmony between growth and distribution, while also stressing fair economic participation at all levels of the society. By putting people at the centre of policies, the vision strives to ensure equal opportunities and competition in the economy and pursues active redistribution measures, especially targeted to vulnerable groups. Accordingly, Korea has exhibited notable progress in enhancing the standard and quality of life for its citizens.

Real wage growth rate rose from 1.3% to 3.7% during 2017-18 and the proportion of low-wage workers decreased to less than 20% for the first time in 2018. This has led to a gradual increase in household income, especially for low-wage households. As a result of the 52-hour work week, annual working hours were reduced to less than 2 000 hours for the first time in 2018. By expanding EITC and CTC coverage, 4.7 million households received benefits in 2019, an increase of 1.97 million units compared to 2018, with a total payment amounting to KOR 5.0 trillion (Statistics Korea, 2018[31]).

In the labour market, youth employment rate has increased and the female employment rate and labor force participation rate reached 57.8% and 52.9% (2018), respectively, the highest level since 2000. The quality of employment is improving, as evidenced by a growing trend in the number of regular workers and employment insurance subscribers. The annual growth rate of labor productivity improved from 2.79% to 3.58% during 2016-18 (Statistics Korea, 2018[31]).

Similarly, there have been prominent achievements in the area of innovation. The number of venture firms is steadily increasing from 33 360 in 2016 to 36,820 in 2018, supported by a massive growth in investment from KOR 3.4 trillion in 2018 to KOR 4.3 trillion in 2019 – this is the fourth largest venture capital investment to GDP ratio in the world. Additionally, more than 190 cases have been selected for the regulatory sandbox initiative since its introduction in January 2019, and the fin-tech sector has secured KOR 136.4 billion in capital, creating 380 jobs (Statistics Korea, 2020[47]).

Stepping up efforts to promote inclusive growth through a coherent people-first strategy

While the proposed policies look at some aspects that are crucial for inclusive growth, more action is needed to build upon the past efforts and deliver improvements in well-being for all. Comprehensive policy packages are needed to address skills gaps, gender gaps, the underutilised potential of youth and the elderly, as well as to create a level playing field for all businesses. Investment in people’s capabilities, for instance in health, in forward-looking skills and training policies, or in broader enabling factors, such as housing, infrastructure and connectivity, are needed to shift towards a sustainable model of prosperity and well-being. Finally, actions in support of broad-based innovation and entrepreneurship can strongly sustain a process of inclusive growth, unlocking a virtuous circle of productivity diffusion as Chapter 3 suggests.

To capitalise on the measures promoted under both pillars of the current administration’s vision for an Inclusive and Innovative Nation, and to achieve a growth model that puts people at the centre of all policy making, it is crucial to promote a coherent and balanced implementation of both pillars – as argued by the next section.

Strategic investment and support to key industries could incentivise technology diffusion across the board and diversity hire 12, thus delivering benefits to the wider economy; whereas inclusive policies promoting equal opportunities such as child allowance or educational policies should be targeted to low-income families. It will be important to ensure that the budget allocation towards the two Inclusiveness and Innovative growth pillars reflect inclusive growth policies coherently, namely that inclusive policies are financially powered in a balanced manner vis-à-vis innovation policies.

The planned support to industries in the government’s push to boost innovation and international competitiveness needs to build on lessons learned from the past. In 2019, the government announced provisions to level the playing field between the manufacturing and service sectors, but additional measures may be needed to prevent large firms from capturing the productivity gains of smaller firms (e.g. through competition policy, trade and investment reforms and measures aimed at preserving the intellectual property rights of SMEs) and to streamline the support available to SMEs. Diversifying exports and encouraging the services sector to integrate in GVCs can also allow a broader set of firms to benefit from gains from trade and can improve the resilience of the Korean economy to external shocks.

Reducing the segmentation of the labour market and rebalancing the economy towards a globally competitive service sector can help ensure that the benefits of economic activity are more fairly distributed in the society, which in turn may help sustain aggregate demand to support growth.

Box 1.2. The role of business in inclusive growth

The business case for inclusive growth is strong. On a macro level, more equal societies benefit business through a larger middle class and growing consumer purchasing power; enhanced government capacity to invest in education, health and infrastructure; and improved economic and political stability. Rising inequality has limited the ability of the bottom 40% to invest in their education and skills, undermining the development of human capital and potential productivity gains, also making it more difficult for employers to find people with the skills and knowledge they need and that are demanded by today’s rapidly digitalising markets. Inequality of opportunity hurts business.

Increased diversity and inclusion, as well as female representation among senior executives and on boards, have been linked to higher business performance and shareholder returns (Hunt, Layton and Prince, 2015[49]). Aligning executive performance evaluation and compensation with long-term business goals, through longer equity vesting periods (Edmans, Fang and Lewellen, 2017[50]), and with sustainability goals (Eccles, Ioannou and Serafeim, 2014[51]) also leads to greater long-term profitability. Similarly, the promotion of responsible tax payment practices correlates with improved returns for some classes of shareholders (Babkin, Glover and Levine, 2017[52]).

In August 2019, the Business for Inclusive Growth (B4IG) initiative was launched on the margins of the G7 Leader’s Summit. Under the leadership of the French President Emmanuel Macron and overseen by the OECD, the B4IG coalition of international businesses has pledged and committed to play their part to strengthen equality of opportunity; reduce territorial inequalities; promote diversity and inclusion; and reduce gender inequality by: 1. Advancing human rights in direct operations and supply chains; 2. Building inclusive workplaces; and 3. Strengthening inclusion in company value chains and business ecosystems.

B4IG companies commit to partnering with G7 governments to better link public policies and business practices for inclusive growth and to accelerating on-the-ground initiatives that bring concrete results for people and places left behind. Companies will use the B4IG platform as a multi-stakeholder forum to progress on policy, practice and innovation for inclusive growth, drawing on the OECD’s expertise and research, including on responsible business conduct (RBC), quality FDI, the work on business and sustainable development, and OECD standards, such as the Guidelines for MNEs, and the work on Base Erosion and Profit Shifting (BEPS).

Sources: (Babkin, Glover and Levine, 2017[52]), “Are Corporate Inversions Good for Shareholders?”, Journal of Financial Economics, http://dx.doi.org/10.2139/ssrn.2700987; (Hunt, Layton and Prince, 2015[49]), “Why diversity matters”, McKinsey & Company, https://www.mckinsey.com/business-functions/organization/our-insights/why-diversity-matters; (Eccles, Ioannou and Serafeim, 2014[51]), “The Impact of Corporate Sustainability on Organizational Processes and Performance”, Management Science, Volume 60, Issue 11; http://dx.doi.org/10.2139/ssrn.1964011; (Edmans, Fang and Lewellen, 2017[50]), “Equity vesting and investment”, The Review of Financial Studies. Volume 30, Issue 7, https://doi.org/10.1093/rfs/hhx018.

All in all, policy coherence can be enhanced through specific governance mechanisms, such as regulatory impact analysis (RIA), Budgeting or Policy Evaluation, that systematically assess the distributional impacts of policies and measure their net effect in terms of the overall well-being of the population. Several countries are experimenting with these new tools and processes, often with successful results.

Finally, businesses need to be part of government’s effort to promote a shared vision for an inclusive Korea. The economic case for inclusion is strong both at the business level and within the broader economy (through lower growth potential and through public spending on social safety nets that could alternatively be channelled more productively towards future skills and innovation). Businesses can play a major role in promoting inclusive growth objectives within companies, within communities and along their supply chains (see Box 1.2).

Key dynamics to steer policy action on inclusive growth

Moving beyond GDP metrics and statistical averages, the inclusive growth agenda in Korea should put people at its centre, focus on well-being outcomes, and emphasise the distribution of outcomes across the population. The challenge is that inequalities in Korea, as in other countries, unfold in different ways across the policy areas under responsibility of different ministries. While specific context and social preferences need to be taken into account, the policy action requires a “whole of the government” approach to make sure that financial, fiscal or monetary decisions, among others, do not undermine social cohesion or social progress.

In general, it is crucial to encourage collaboration across Korean administration and ensure that policies are interconnected within the government and across its multiple layers. These interlinkages can be leveraged and reinforced through specific governance mechanisms (such as budgeting) and by establishing regular coordination platforms across levels and layers of governments.

Governing in the aim of promoting inclusive growth also means identifying synergistic policies for growth and inclusiveness and mitigating possible trade-offs and unintended consequences of policies. Some policies hold the promise of improving the life of everyone, for instance high-quality education from early childhood through to school age and beyond, with a focus on granting access to educational opportunities to children from disadvantaged families. Comprehensive and forward-looking skills and training policies are also central to preparing for the future of work and to bridge divides between workers. Other forms of investment in people’s capabilities, for instance in health, or in broader enabling factors, such as housing, infrastructure and connectivity, are also needed to shift towards a sustainable model of prosperity and well-being. Finally, actions in support of broad-based and grassroots innovation and entrepreneurship can strongly sustain a process of inclusive growth. To get real traction, the corporate sector, civil society and all citizens have a role to play (see Box 1.2 for the corporate sector).

OECD research on inclusive growth shows however that not every policy reform is necessarily a win-win for inclusive growth. Trade-offs may arise in the case of some tax and benefit reforms, such as shifting from direct to indirect taxes or reducing marginal income tax rates. Likewise, product market reforms may increase both employment and wage dispersion, so that the overall effect on income inequality is ambiguous. Also, their equity effects can depend on reform design and timing. Yet, there are standards and new innovative approaches to policies that can create win-win situations: for example, investing in the skills of children from low-income families, reskilling and upskilling displaced workers or promoting diffusion of technologies and innovation across all firms.

The OECD Framework for Policy Action on Inclusive Growth highlights three key dynamics that policies in Korea can help to catalyse. The main building blocks of policy action to sustain and more equitably share the gains of economic growth are:

1. Investing in people and places that have been left behind through (i) targeted quality childcare, early education and life-long acquisition of skills; (ii) effective access to quality healthcare services, education, justice, housing and infrastructure; and (iii) optimal natural resource management for sustainable growth. In Korea, this directly translates into policy efforts to invest in children and youth through better quality ECEC and vocational education, as well as affordable tertiary education; empower women and girls through combatting gender stereotypes and boosting their participation in STEM and public life; and improve the lives of the elderly through better options for prolonging working life and expanding pension coverage.
2. Supporting business dynamism and inclusive labour markets through (i) broad-based innovation, fast and deep technology diffusion; (ii) strong competition and vibrant entrepreneurship; (iii) access to good quality jobs, especially for women and under-represented groups; and (iv) resilience and adaptation to the future of work. In Korea, this directly translates into policy efforts to make labour markets more responsive to the changing world of work through adapting the social safety net; and supporting business dynamism through levelling the playing field for all businesses and promoting a more inclusive GVC strategy.
3. Building efficient and responsive governments through (i) aligned policy packages across the whole of government; (ii) integration of equity aspects upfront in the design of policy; and (iii) inclusive policy-making, integrity, accountability and international coordination. In Korea, this directly translates into policy efforts to address the trust deficit by engaging with all stakeholders; address intergenerational divides by reconciling the needs of youth and the elderly; governing a complex agenda across policy silos and across political cycles through involving stakeholders; and address pressures for more redistribution, while monitoring political economy aspects of tax increase for accountability and transparency.

The three pillars that underpin the OECD Framework are broadly aligned with the objectives of the Innovative and Inclusive Nation in Korea and address the key foundations of inclusive growth in a comprehensive manner. Whereas the Korean vision looks at innovation as a self-standing pillar for advancing economic growth, the OECD Framework frames innovation as a driver of inclusive growth. Innovation is an engine and enabling condition that can drive productivity gains and business dynamism, under the precondition that these benefits are shared widely and that this aspect is taken into account in the policy design for innovation support.

Investing in people and places left behind, creating opportunities for all

Inequalities may undermine intergenerational mobility. Disadvantages in places of origin, early education, health and the labour market often compound each other throughout the life cycle. The key dynamics for Korea to sustain is:

Continue investing in children and youth through quality ECEC and vocational education, as well as affordable tertiary education. To further increase the quality of ECEC ensuring an equal start for all children, Korea may consider standardising the curriculum and quality across centres and strengthen the monitoring of quality. A mandatory accreditation for centre-based services was introduced in June 2019 and considers the care environment, management, childcare programmes, interaction with children, teaching methods, health, nutrition and safety. Quality affordable ECEC facilitates equal opportunities early in life, while supporting the return of women to the labour market if they wish to do so.
Strengthen efforts to decouple opportunities from socio-economic backgrounds. According to the OECD PISA 2018 assessment, socio-economic background plays a lesser role in 15-year-old students’ academic performance in Korea than in the OECD on average. Nevertheless, socio-economic status has become a factor in subsequent crucial steps in education affecting employment prospects later on, notably in the entry exams for universities and companies. Korean households spend around 20% of income to pay for after-school private academies (hakwon) (Calonge, 2015[53]). Korea has recently introduced measures to reduce costs of tertiary and higher education. The government plans to complete the introduction of free high-school education by 2021, abolish university entrance fees by 2022 and has expanded scholarship support to low-income families and the middle-class. Better alignment between education and the requirements of universities and the labour market would further reduce the pressures on household income to invest in additional training and tutoring. Further strengthening vocational training, through extending apprenticeship programmes and deepening connections with industry, would help to reduce the share of NEET, as well as minimise labour market mismatch and labour shortages in SMEs.
Empower women and girls by boosting their participation in companies, public sector, administration and research entities (e.g. by facilitating acquisition and application of skills in STEM – Science, Technology, Engineering and Mathematics). Korea should continue to actively support and encourage women’s and girl’s representation in science, technology, engineering and mathematics (STEM), where the share of female Bachelor’s graduates is 29.7% (OECD, 2017[54]). Further steps to support women’s entrepreneurship through financial start-up support and mentoring, and more equal sharing of care responsibilities would boost women’s participation in the economy. In 2019, the government launched a Masterplan for Promoting Women’s Entrepreneurship Activities, which is a step in the right direction as it includes financial start-up support, a guarantee program, R&D support and a reporting centre for unfair trade practices (MSS, 2019[55]).
Empower women and girls by addressing gender stereotypes. Efforts need to be sustained to address gender stereotypes, perceptions and social norms that limit the prospects of women and girls. The issues include potential fields of study, career prospects and professions and the sharing of unpaid care work. Workplace culture and social expectations can still pressure women to withdraw from the labour force, particularly if they choose to have children (OECD, 2017[54]). Korea has a clear track record of implementing legislation, policies and media campaigns that improve the lives of women and girls and could capitalise on this experience. The 2019 edition of the SIGI Global report, for example, shares a case study of Korea’s success in the reversal of skewed sex ratios at birth through legal reforms and mass media campaigns (OECD, 2019[56]).
Empower women in decision-making and managerial positions. Affirmative action policies to promote women in management positions, such as targets or quotas for the civil service and in politics, can increase the visibility of women in leadership roles (Box 1.3 showcases relevant good practices in Iceland). The target setting in public service at the national level by the Ministry of Personnel Management has brought about improvements. For instance, in 2017, 50.2% of civil servants at the national government level were women. The proportion of women in middle management positions has increased from 8.4% in 2011 to 14.8% in 2017. The policy could evolve by reinforcing women’s representation at the senior levels of civil service, where the proportion of women in 2017 was still only 6.5% (Kim, 2019[57]). The government has taken a number of other steps to promote diversity within the civil service through targeted affirmative action policies for persons with disabilities, persons from regions outside Seoul and for people from low-income families. The Ministry for Gender Equality and Family has also introduced a plan to promote women's participation in the public sector and in leadership positions. The government could devise a comprehensive legal framework and policy against discrimination and harassment. It could take affirmative action a step further in institutionalising diversity as a core value in the workplace. Diversity should also drive policy direction and decisions.
Improve the lives of the elderly through better options for prolonging working life and expanding pension coverage. A large proportion of the elderly population is vulnerable to old-age poverty and tax and transfer policies have not been effective in reducing poverty. With a rapidly ageing society, policies to help the elderly should address education and training, social exclusion and expanding the coverage of the National Pension System. To address digital divides, the Ministry of Science and Technology offers training to improve the digital literacy of the middle-aged and elderly population and reports a narrowing of the digital divides from year to year. To address old-age poverty, the government increased the Basic Pension in 2019. A basic pension of up to KRW 300 000 is provided to the bottom 20% of the income group, and up to KRW 254 000 for the bottom 20-70% to KRW 300 000 (USD 260), while maintaining its coverage at 70% of the elderly. The National Pension Act expanded the coverage in recent years through allowing deferred payment of pension premiums for career break due to childbirth, etc. through introducing a subsidy of 75% for the NPS contribution paid by the unemployed, and through introducing a subsidy for employees at small firms (with less than nine workers) (OECD, 2018[16]). Further actions could include gradually raising government revenues to finance rising social spending, in the context of population ageing. The government could focus on taxes with a less negative impact on growth, such as the VAT and environment-related taxes (OECD, 2019[45]). Tax reforms should come with inclusiveness objectives incorporated in their design and encourage longer productive employment though investment in skills and health.

Box 1.3. Women’s economic empowerment in Iceland

Participation of women in the labour market is the highest among the OECD countries, and women can continue to work until late in their lives, if they wish to do so. Iceland tops the list of the Global Gender Gap Index. It is the top performer on political empowerment and educational attainment and in the top ten on economic participation and opportunity. Iceland also has a high number of women among legislators, senior officials and managers. Snævarr (2015[58]) finds that the “unexplained” gender wage gap (after controlling for other factors) was about 5.1% in 2011-13 and has been decreasing over time. It lies above Sweden, but is lower than in Denmark and Norway.

Iceland was the first Nordic country to enshrine in law (in 1975) the equal status and equal rights of men and women. For publicly-owned companies and public limited liability companies with at least 50 employees, boards of more than three members must be composed of at least 40% of each gender. Moreover, companies with 25 or more employees are required to disclose the gender composition of their employees and managers. Despite a low gender gap, the authorities are determined to reduce it further. The government wants to make it compulsory for all companies with 25 employees or more to develop a certification scheme for gender pay equality, with the aim that all jobs of equal value are paid the same. The obligation imposes implementation costs for the enterprises, such as auditing requirements. In this light, rolling out the scheme gradually, first for bigger firms and then for smaller ones, as proposed by the government, and monitoring the impact will allow the policy to be modified to avoid excessive burdens.

Source: (OECD, 2017[59]), OECD Economic Surveys: Iceland 2017, OECD Publishing, Paris, http://dx.doi.org/10.1787/eco_surveys-isl-2017-en.

Mitigate pressures on public spending, engage Koreans in productive employment for longer. In the context of one of the world’s highest effective retirement rates, it is crucial to upskill and reskill the labour force along the life cycle to address intergenerational skill gaps (see Box 1.4 for an example of the upskilling strategy in France) as many Koreans retire from regular quality jobs in their mid-50s and return to the job market in low-paid jobs or engage in self-employment. In addition, further policy action is needed to address perceptions and social preferences against competences, where businesses opt to hire younger workers rather than retain older workers.

Box 1.4. The 2018 reform for continuous training in France

The Act for the freedom to choose one’s future career, which passed into law in September 2018, aims to simplify the training system, strengthen personal initiative and guidance, and to improve the quality and relevance of training. First, regulation and governance have been intensified. A single body, France Compétences, encompasses both central and regional government, as well as workers’ and employers’ unions, and has replaced a governance system that was spread out across several sectors of industry.

Second, there are changes to the operation of the personal training account. The account was previously measured in training hours, but has now been monetised in euros. The amount of the annual payments is based on workers’ skills and comes to between EUR 500 and EUR 800; the total amount is capped at EUR 5 000 and EUR 8 000. Part-time workers – if they work more than 50% of full-time hours – will also benefit from the same rights as full-time employees. An application will be launched in the autumn of 2019 to allow users to access training online. Under the reform, the hours accumulated in pre-existing personal training accounts will be converted into euros at a rate expected to be EUR 15 per hour.

Third, the law introduces guidance for potential beneficiaries, as well as controlling the quality of and information about the training provided. Part of the funds dedicated to professional training and apprenticeship will now be earmarked for the career advice service that is offered. Furthermore, improvements have been made to the monitoring of training quality. Training and apprenticeship bodies will have to be certified to obtain public financing as of 2021. The criteria for this certification, which will be harmonised, will replace a mediocre system that was not sufficiently independent from the training bodies themselves (CNEFOP, 2018[60]). These criteria have yet to be defined by decree.

Sources: French Act for the freedom to choose one’s future career (Loi pour la Liberté de choisir son avenir professionnel) https://travail-emploi.gouv.fr/IMG/pdf/act_for_the_freedom_to_choose.pdf; (CNEFOP, 2018[60]), Rapport faisant synthèse des démarches Qualité menées dans le champ de la formation professionnelle, en liaison avec les financeurs, National Council for Employment, Vocational Training and Careers Guidance, http://www.cnefop.gouv.fr/rapports-139/rapport-qualite-du-cnefop.html; (OECD, 2019[61]), OECD Economic Surveys: France 2019, OECD Publishing, Paris. https://doi.org/10.1787/a0eee144-en.

Supporting inclusive labour markets and business dynamism

Inclusive Growth is about triggering a growth process that is underpinned by a broad asset base. It is key to have the necessary pre-conditions for workers, entrepreneurs and firms in place to be productive and innovative in the workplace and in markets, as well as putting strong incentives in place to maintain momentum. This may require workers’ real wages to keep up with rising productivity; and that corporate governance models be reassessed in light of new approaches including incorporation types and employee ownership, new business models and vibrant social dialogue; as well as the integration of a long-term perspective in the design of incentives and compensation for shareholders and executives.

A common challenge in Korea is ensure that the radical transformation of labour markets brought about by the emergence of the digital economy does not leave workers or companies behind. The engagement with social partners may need to be strengthened to ensure the creation of quality jobs and non-discrimination in the workplace, as well as to facilitate a smooth transition towards the future of work. Addressing the dualisms that drive inequalities in Korea – labour market dualism, gaps between large and other firms and between the manufacturing and services sector, and limited opportunities for youth, women and older workers – is key to boosting long-term inclusive growth prospects.

Labour market practices and social protection tools need to keep adapting to a changing world of work. Entitlements may need to be linked to individuals rather than jobs. In an increasingly digitalised economy, characterised by acceleration of advantages for frontier firms, policies that encourage productivity and knowledge diffusion between the frontier firms and the rest will need to be stepped up; policies will also need to address the gap between the manufacturing and service sectors.

More specifically, the key dynamics for policies to support labour market inclusiveness are:

Continue efforts to make labour markets more responsive to the changing world of work. Promoting inclusiveness and reducing the dualism in the labour market requires a shift from protecting jobs to protecting individuals. This shift requires further reinforcement and strengthening of the social safety net, with broadening the coverage of the employment insurance, the Earned Income Tax Credit (EITC) and the Basic Livelihood Security Programme (BLSP). These measures could be supplemented by introducing more transparency in employment protection for regular workers to improve conversion to regular status and worker retention, to more adequately match wage and productivity levels and help with integrating youth, women and older workers. Policies could strengthen enforcement of the remedial process to redress discrimination in terms of wages and working conditions against non-regular workers who perform tasks similar to regular workers in the same firm. The statutory minimum wage could be used as a tool to raise wages at the bottom of the wage ladder, while ensuring coordination with the EITC and monitoring that low-skilled workers are not priced out of jobs.
Invest in re-skilling and up-skilling workers, as well as those who are unemployed or have left employment for extended periods of time. In the context of automation that may put 10% of jobs at high risk, and a further 33% may see a large share of tasks automated in Korea, policies that support life-long learning, such as the “People’s Learning for Tomorrow Card” should further incorporate portability of training rights along the entire career path. Policies could further remove obstacles for up-skilling, most notably time constraints (which are emphasised by all age groups, but particularly prevalent among the low-skilled), including through enforcing the government policy of reducing the work week from 68 to 52 hours per week. Specific policies need to be considered to improve the labour market prospects of women, youth, older workers and immigrant workers as outlined in the next paragraphs.
Address gender gaps through better pay and enforcement of anti-discrimination measures. Career differences between men and women develop early in working life and lead to a gender wage gap that is higher in Korea than in any other OECD country. Pay transparency measures could be introduced to help reduce the gender pay gap. Korea could also tackle discrimination more effectively by increasing sanctions for non-compliance with non-discriminatory workplace practices; strengthening the labour inspectorate to more effectively enforce anti-discrimination legislation; and making it easier for workers to file complaints on discrimination with labour courts. The gender pay gap discourages women, particularly those with higher education, from returning to the labour force after a prolonged absence from the labour market. The labour participation gap between men and women was 20.8 percentage points in 2018. Programmes already put in place, such as awareness raising campaigns Ministry of Gender Equality and Family (for example, by distributing books and educational contents on gender equality), could be expanded, for example by focusing on on-the-job counselling and training and promoting greater working time flexibility and expanding opportunities to work part-time with remuneration proportional to that of workers on full-time regular contracts.
Promote diverse career opportunities for youth. The employment rate of young Koreans aged 15 to 29, at 42% in 2017, stands well below the OECD average of 53%, with a considerable share of young Koreans (18.4% in 2017) that are not in education, employment, or training (NEET). Many of these youth are actually preparing for university or company entry exams or following informal education courses. While the school environment is highly competitive in Korea, universities and employers see formal education degrees as insufficient measures of the applicant’s skill and ability, preferring their own exams. In turn, it is widely perceived that the formal education system does not set up students for success in their careers and families invest heavily in informal education to be competitive in entry exams of universities and subsequently companies that offer regular jobs with associated wage premiums and other advantages. Policies could encourage career counselling and promotion of diversified career paths. Improving the public perception of vocational education, expanding Meister Schools and strengthening ties between schools and firms through work-study and apprenticeship programmes would help reduce labour market mismatch.
Prolong productive quality employment through upskilling and wage peak systems. The tendency for workers to be forced out of regular jobs in their fifties, makes them vulnerable to poor quality non-regular low-paying jobs and old age poverty. The retention of older workers could be encouraged through training programmes and decoupling wage increases from seniority, linking wage increases to productivity instead – given that nearly 40% of Korean workers that are 55-64 years old hold a non-permanent job. The wage peak system could be expanded, whereby the employer commits to maintaining older workers in their jobs in exchange for a wage cut that is partly compensated by government subsidies granted to the employee. To address old age poverty, the government could continue expanding the Basic Livelihood Security Programme (BLSP), and expand pension scheme coverage for self-employed and non-regular workers.
Improve the Employment Permit Scheme to attract foreign workers. To improve the prospects for migrant workers, continued efforts could be made to address the limited wage growth of Employment Permit Scheme (EPS) workers during their stay in Korea, as well as the mobility restrictions which make it difficult for workers to develop higher skill levels. Changes in the programme to select and prioritise higher-skill workers, and to extend their stay to up to 10 years for higher productivity workers, may improve the attractiveness of the programme.
Promote work-life balance. Korea has had among the longest working hours in the OECD area for many decades. The average number of hours actually worked per workers in 2017 was 2 024, well above the OECD average of 1 759 hours. Long working hours are widespread regardless of age, gender, company size, industry, and region (OECD, 2018[62]), and have an adverse effect on work-life balance and health. They are also cited as a major reason for the lack of time for skill development. In an attempt to stop chronic overworking, Korea has introduced new measures to lower the maximum hours people can work from 68 to 52 hours – split between 40 statutory work hours and 12 hours of allowed overtime. In force since July 2018 among large firms, the government plans to extend them to medium-sized firms from January 2020 and small firms from July 2021. An implementation mechanism should monitor the enforcement of the reduced hours.

At the same time, Korea needs to foster business dynamism, for example by considering to:

Level the playing field for all businesses and promote a more inclusive GVC strategy. To ensure that doing business in the future will bring both growth and inclusiveness, Korea could focus on eliminating the inequalities that have accumulated in the economy, focusing on creating a level playing field for the service sector vis-à-vis the manufacturing sector and addressing the productivity gaps between SMEs and large conglomerates.
Rebalance productivity growth towards services. A strong signal is needed that services matter to the economy as much as manufacturing industries. In July 2019, the Ministry of Economy and Finance announced a plan to provide the service sector with the same level of fiscal and financial support as the manufacturing sector, in order to promote R&D, service standardisation and service-manufacturing convergence (MOEF, 2019[63]). The plan should look at providing the same level of support, operating under the same tax rules and addressing the regulatory barriers faced by service industries to allow young firms and start-ups to emerge (see Chapter 3 for prioritisation of reforms). For example, the support policies announced for strategic industries selected by the government (future cars, bio health, smart industry industrial complex, fin-tech, new energy industry, smart cities, smart farms and drones) should look at the balance between support to manufacturing and services, but also at how the support relates to broader inclusiveness objectives for the society (e.g. labour market and skill policies). Government support policies could ensure that innovation and activity in emerging sectors is not discouraged or displaced.
Enable SMEs to work with large firms and be more productive. The government may need to better address oligopolies and monopsonies in the intermediate markets through competition policy and trade reforms. In particular, the Korea Fair Trade Commission’s (KFTC) monitoring role could be strengthened. Lowering barriers to trade and FDI would support the entry of foreign firms (both as suppliers and buyers), potentially reducing the market power of incumbent domestic firms. Policies that encourage large firms to cooperate with SMEs could be reinforced. For example, the Ministry of SMEs and Startups is recognizing the efforts of large firms that willingly share their internal resources such as technology, know-how, and infrastructure with SMEs as a “caring” Company (in Korean, ‘Ja-Sang-Han’ Company).
Support the diffusion of technology between frontier firms and other firms. Policies could continue strengthening incentives for large companies, business associations and universities to set up consortia for sharing know-how, equipment and facilities with SMEs (see Box 1.5 for a selection of successful programmes in OECD countries). Existing initiatives such as the Leaders in Industry-University Co-operation Plus (LINC+) and Industry-Academia Co-operation platform should be scaled up. Korea could also reconsider funding models for universities and research institutes, rewarding collaboration with the industry.

Box 1.5. Fostering collaboration between education institutions and businesses: country practices

In the United States, Rhodes College has successfully embedded work-based learning into curricula. Its career service centre, responsible for matching employers and students, delivers various programmes such as third-party internship programmes or alumni-supported, work-based learning opportunities. In the former, Rhodes College partners with third parties to provide access to established internship programmes. The latter draws on financial support from alumni to fund specific work-based learning opportunities.

In Canada, most provincial governments have passed legislation requiring colleges to establish “programme advisory committees” (PACs) that focus on collaborative development of curricula. PACs generally consist of 5 to 12 members including college staff, students and a selection of external participants with experience in a particular field. Among others, these committees act as a venue for social partners to identify skills that graduates need to find employment in associated occupations or provide suggestions for content to be included in the programme.

In Norway, social partners participate as external members in the governing boards of domestic higher education institutions. The Universities and University Colleges Act stipulates that 4 out of 11 seats on each higher education governance boards must be taken up by an external member (including social partners). In this way, social partners with close links to the labour market are able to contribute to decision-making processes relating to the institution’s strategy for education, research or other engagement activities.

Source: (OECD, 2019[64]), OECD Economic Survey: Malaysia 2019, OECD Publishing, Paris,

https://doi.org/10.1787/eaaa4190-en; Adapted from (OECD, 2018[65]), Higher Education in Norway: Labour Market Relevance and Outcomes, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264301757-en.

Boost the productivity and growth of SMEs. Korea could look into streamlining the more than 800 programmes that already exist for SMEs, managed by various institutions, as well as assessing their alignment with new support measures implemented and planned for 2019-20 (see Chapter 3). For example, creating a “one-stop-shop” for SMEs would make it easier for businesses to get the help they need and match their needs with available support. There are also a range of SME support policies that help SMEs to overcome their disadvantage in accessing credit, in dealing with red tape and bearing fixed operation costs. Some of these, however, are size contingent and act as a disincentive to grow. Korea has looked into this phenomenon and introduced a series of policy responses. Monitoring and evaluating these could help arrive at a graduation system that would encourage SME expansion. To unleash the potential of SMEs and support experimentation and innovation, the costs of experimentation and failure would need to be reduced and de-stigmatised. This could be achieved through better insolvency regimes and regulatory reforms that promote competition and innovation, such as the recently implemented Regulation-Free Special Zones, the negative approach to regulation and initiatives that promote the digitalisation of SMEs.13
Enhance the importance of the service sector in GVCs. The productivity gap between manufacturing and service firms leads to a lower insertion in service GVCs. This is a concern not only for inclusiveness but also for the future of manufacturing GVCs. In the digital era, manufacturing firms rely more and more on services to generate income (servitisation, mass customisation and importance of knowledge-based services for innovation). And while Korea has a strong comparative advantage in the ICT & electronics sector, there are already signs of a declining centrality 14 in this industry. In an uncertain international environment with rising protectionism, the dependence of Korea on manufacturing GVCs can become a risk. Creating a more inclusive GVC strategy rebalancing exports towards services could help as services are more resilient to trade shocks and less targeted by short-term protectionist measures. Another way to mitigate the impact of current trade tensions would be using mega-regional agreements to lock in trade preferences.

Governing a complex and multi-dimensional inclusive growth policy agenda

The implementation of the vision for Inclusive and Innovative nation in Korea, in a way that delivers to all, touches upon a wide range of areas: from education, health, labour market, trade, to gender policy and social security. Achieving the objectives of an inclusive growth strategy is therefore a complex undertaking, requiring a carefully planned and steered institutional mechanism for its delivery. OECD research on governance of complex agendas, such as the Sustainable Development Goals (SDGs), highlights a number of challenges that governments face (OECD, 2019[66]). A set of these relate to the complexities of the substance of a comprehensive policy agenda, as it requires setting priorities and sequencing, ensuring policy coherence and managing trade-offs across economic, social and environmental objectives. Key dynamics to be considered:

Embedding inclusiveness in policy-making and making governance participatory. Coordinated action may be needed to strengthen institutional frameworks for mainstreaming and budgeting of gender and diversity, including through open government. Korean administration needs to continue the efforts to encourage a culture of collaboration and iteration between ministries and departments; work with institutions at the sub-national and local levels; integrate the inclusive growth agenda within the budgeting cycle; and engage with different stakeholders - citizens, academia, private sector, social partners and non-profit organisations. The collectively defined vision needs to be shared by all institutional actors to sustain beyond the political cycle (OECD/KDI, 2018[67]). For example, when designing and implementing policies on promoting the acquisition of digital skills across all groups of the society, a comprehensive approach would involve Korean ministries of Education, Employment and Labour and Science & ICT as well as social partners.
Beyond anti-corruption measures, the policy-making process needs to be protected from undue influence to avoid the capture of public policy by narrow interest groups. Greater stakeholder engagement could contribute to strengthening policies in Korea, standards and projects in areas of broader public interest, following the Recommendation of the Council on Open Government [C(2017)140] [C/M(2017)22] .
Strengthening the redistributive power of taxes and transfers. There is scope to improve the targeting of support, while avoiding excessive administrative burden, as Korea has one of the lowest redistribution rates in the OECD. Merely 23% of total transfers are targeted towards the bottom quintile; and the bottom 40% households pay more in taxes than they receive in transfers in Korea (Causa and Hermansen, 2017[68]). Since 2009, social expenditure increased by 2 percentage points in Korea (alongside Finland and Norway) reaching 11.1% of GDP in 2018, compared to the OECD average of 20.1%. Public social expenditure-to-GDP ratio in Korea has more than tripled since 1990 (OECD, 2019[69]), but remains one of the lowest ratios in the OECD (Causa and Hermansen, 2017[68]), reflecting the relatively undeveloped stage of the welfare state, as well as the current demographic situation of a young population, as compared to some other OECD members.
Affording further expansion of the coverage of the social protection system and the NBS. Achieving more redistribution would imply raising more revenue out of general taxation (Causa and Hermansen, 2017[68]), for example from taxes that have less effect on growth, such as the VAT and environment-related taxation (OECD, 2019[45]), while considering inclusiveness aspects in the design of the tax reforms. International comparison suggests space to do so, as the tax-to-GDP ratio in Korea was 28.4% in 2018, substantially lower than the OECD average of 34.3% and ranking as 30th out of the 36 OECD countries. Since 2000, the tax-to-GDP ratio has already increased by 6.9 percentage points. (OECD, 2019[70]). However, there is a need to pay close attention to the political feasibility in light of citizens’ perceptions towards the acceptability of tax increases.
Using data and smart technologies in screening policies for inclusiveness and accountability. This may require more efforts to improve budget transparency and ensure sound public financial management, ex-post evaluation of regulatory policies, government reliability and the reaction capacity to adverse shocks, as well as greater responsiveness and openness to citizen input.
Addressing intergenerational divides and erosion of social ties. In the context of low public spending, ineffective redistribution, and electoral dynamics of an ageing society, there is a growing intergenerational divide between the young and the elderly. The young feel discontentment with the welfare system, which requires them to take responsibility for the elderly, while simultaneously having to compete with older people for jobs. In an ageing society, with a growing elderly voting population, election periods tend to go hand-in-hand with increases in welfare commitments, adding to the anxieties of young workers (Rhyu, 2017[71]). The intergenerational tension is representative of a broader societal trend, namely a lack of social cohesion and the erosion of societal ties. These have not traditionally been areas targeted by public policy, and present a missed opportunity. A strong social network, or community, can provide emotional support during both good and bad times as well as provide access to jobs, services and other material opportunities. In Korea, 79% of people believe that they know someone they could rely on in a time of need, the second lowest rate in the OECD, where the average is 90% (OECD, 2020[72]).
Innovative policy solutions are emerging to address exclusion and isolation. Recent local level policies in Korea have looked at some aspects of the isolation and exclusion of the elderly who live alone. For example, the Seoul Metropolitan Government has established a Comprehensive Plan for 50+ Assistance, which provides life training, emotional support, cultural experiences and retraining for continued social opportunities among the newly retired (OECD, 2018[1]). To promote social interaction, the government has also encouraged projects that promote the sharing of cars, bikes, toys, food, homes, skills and more. A range of private initiatives and social ventures have also emerged, such as SHAREUS, where the elderly are empowered to teach classes on diverse subjects in their area of expertise. Successful initiatives of this kind, which foster vibrant, inclusive communities, could be scaled up at the national level, tying into related policy areas such as education, skills, housing, gender or connectivity policies.

Effective engagement with citizens

Citizens and society could have a stronger role to play with regard to informing and steering policy decisions. This can happen once they feel their voice is being taken into account and their contributions are being translated into concrete improvements. Effective administrative justice can help to ensure public accountability, transparency, participation and openness. It constitutes an interface between public administration and society to protect the public interest and individuals’ rights, while improving democratic accountability. Involving under-served or excluded populations in decision-making could help to build trust between citizens, businesses and governments. Accessing government and corporate information and secure exchanges of data is one step forward Korea is exploring to make engagement of citizens easier through open governance initiatives.

The OECD Framework for Policy Action on Inclusive Growth suggests four key areas for policy attention to restore citizens’ confidence in government that are relevant to the Korean context:

First, better governance and delivery of services can enhance trust and improve citizens’ perceptions of institutional and representative performance (Murtin et al., 2018[73]). This includes improving government integrity and demonstrating government reliability for instance when dealing with adverse events. Active communication on quality service delivery could help shift people’s perceptions.
Second, trust can be restored by making policy-making more responsive, by building a framework for comprehensive citizen participation in the policy cycle. Korea should continue moving from stakeholder information and consultation to meaningful engagement (Box 1.6), where stakeholders are given the opportunity and the necessary resources (e.g. information, data and digital tools) to collaborate during all phases of the policy-cycle and in service design and delivery, as defined by the OECD Recommendation of the Council on Open Government (OECD, 2018[1]). In addition to direct engagement with civil society, policy makers could more actively involve stakeholders in the process of developing policies and regulations at an early stage, including through innovative digital tools such as the e-people platform 15 (Kim, 2018[36]). Korea could also empower citizens with data and information to enable them to make informed decisions about their personal and professional development and public participation. This would provide citizens with a sense that their voices are being heard and instil greater ownership over policy choices (OECD/KDI, 2018[67]).
Third, trust in government can also be improved though mainstreaming diversity and gender equality into public life to better reflect the spectrum of needs of all citizens. Diversity and gender equality in public life is an indicator of commitment to the vision of inclusive growth. As already discussed, despite recent improvements, Korea is still struggling with the representation of women in public life. Indeed, women comprised a mere 17% of the MPs in the National Assembly (OECD, 2018[1]) and 45% of public sector employees in 2017 (the OECD average was 60% in 2017) (OECD, 2019[74]). Policies towards gender parity can help attract women and help them advance to more senior levels, as discussed in the section on policy insights for investing in people and places. Hiring targets for women are in place in 10 OECD countries, and 6 OECD countries have promotion targets for women.

Box 1.6. Improving trust through citizen engagement: the case of the Netherlands

To improve trust in policy making, the government of the Netherlands began a move to reorganise, professionalise and measure citizen engagement in 2006. Along with improving trust in the process, the government’s intention was to make engagement more effective and to support good decision making. “The professionalization” consists of a Code of Conduct with “principles of good consultation” and an interdepartmental organisation (Inspraakpunt) that can assist public officials through a platform for knowledge exchange and a regular benchmark for the quality and effectiveness of citizen engagement.

In 2008, the government of the Netherlands conducted an empirical evaluation of the impact of professionalism on citizen engagement. It drew upon 36 examples of citizen engagement, and the results demonstrated that the more the standards for professionalism are met, the higher the scores of subjective and objective effects. This is particularly true where preconditions are favourable. If policy options are limited, or commitment from the political level is low, the effect of professionalism is considerably lower. Good communication leads to greater impact. Participants are more satisfied with the process and the results if there is clear communication about the influence of participants and if the results are clearly demonstrated. Support from the community for final decisions will, in general, be greater.

If project leaders ensure that the process is made-to-measure for the problem at hand, all those involved are more satisfied with the results. Support from society for solutions will be greater…if the process is made-to-measure for the issue at hand.

Of all preconditions, political commitment in particular stands out. Impact is generally greater in processes where responsible politicians are supportive of citizen engagement. This is equally true if they are visible to participants during the process and perceived by the outside world as an operating unit.

Source: Van der Wal, H., I. Propper and J. de Jong (2009), “Developing professional standards for citizen engagement: The Netherlands”; (OECD, 2017[75]), Trust and Public Policy: How Better Governance Can Help Rebuild Public Trust, Public Governance Reviews, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264268920-en.

Fourth, preventing and tackling perceptions of policy capture is essential for promoting trust in government. This factor is especially important for Korea, where the previous growth model contributed to a rise in inequalities and a legacy of vested interests and divisions. Koreans’ concerns about integrity seem particularly related to the risk of policy capture and potential conflict of interest between the public and the private sectors (OECD/KDI, 2018[67]). The concentration of economic power among the four or five largest conglomerates is intensifying (e.g. through subcontracting arrangements that do not share profits equitably), while the benefits they bring to the wider economy seem to further dissipate. For example, the proportion of employment accounted for by large conglomerates is only 10%, and the figure is gradually falling (Rhyu, 2017[71]). New policies in support of the innovation pillar of President Moon Jae-in government’s vision for Korea, such as large subsidies to conglomerates operating in sectors that the government has identified as priorities (bio-tech, automated cars and semiconductors) need to be mindful of the lessons of the previous export-led growth model and deliver to the rest of the economy to avoid potential negative effects of trust. Therefore, the innovation pillar therefore could be closely integrated and aligned with the inclusiveness pillar of the government’s vision for Korea as an Inclusive and Innovative Nation. This means conducting a rigorous and transparent impact assessment of the distributional effects of the innovation pillar; while ensuring that the organisation of industrial relations is not unduly influenced by powerful industrial groups.

Monitoring progress with a dashboard of inclusive growth indicators and tracking the impacts of policies on distributional outcomes

A long-term strategy for an Inclusive and Innovative Korea also needs to be underpinned by a monitoring mechanism that would enable Korea to track progress over time and inform necessary adjustments in policy and budget allocations in a comprehensive manner on the national scale (see Box 1.7 for an example of the New Zealand Well-Being Budgeting). No policy strategy can be sustained if data and appropriate indicators are not available to monitor progress and identify policy targeting and prioritisation.

The OECD Dashboard of Inclusive Growth indicators (Table 1.3) can be a starting point for Korea in developing a monitoring mechanism that captures how well the economy is performing for all of its citizens. It would also measure progress towards the achievement of Korea’s priorities. The measurement framework could build on existing frameworks in Korea, such as the key performance indicators (KPI) used in the budgeting process and the indicator framework used by the Special Committee on Income-led Growth. In addition, this measurement framework could be used to identify priorities of action as well as for evaluating the impact of policies, as done in some OECD countries that are moving towards a multidimensional evaluation of policies (Durand and Exton, 2018[76]).

Table 1.3. OECD Dashboard of Inclusive Growth Indicators
Category	Core indicator
1. Growth and ensuring equitable sharing of benefits from growth	1.1	GDP per capita growth (%)
	1.2	Median income growth and level (%; USD PPP)
	1.3	S80/20 share of income (ratio)
	1.4	Bottom 40% wealth share and top 10% wealth share (% of household net wealth)
	1.5	Life expectancy (number of years)
	1.6	Mortality from outdoor air pollution (deaths per million inhabitants)
	1.7	Relative poverty rate (%)
2. Inclusive and well-functioning markets	2.1	Annual labour productivity growth and level (%; USD PPP)
	2.2	Employment-to-population ratio (%)
	2.3	Earnings dispersion (inter-decile ratio)
	2.4	Female wage gap (%)
	2.5	Involuntary part-time employment (%)
	2.6	Digital access (businesses using cloud computing services) (%)
	2.7	Share of SME loans in total business loans (%)
3. Equal opportunities and foundations of future prosperity	3.1	Variation in science performance explained by students' socio-economic status (%)
	3.2	Correlation of earnings outcomes across generations (coefficient)
	3.3	Childcare enrolment rate (children aged 0-2) (%)
	3.4	Young people neither in employment nor in education & training (18-24) (%)
	3.5	Share of adults who score below Level 1 in both literacy and numeracy (%)
	3.6	Regional life expectancy gap (% difference)
	3.7	Resilient students (%)
4. Governance	4.1	Confidence in government (%)
	4.2	Voter turnout (%)
	4.3	Female political participation (%)
Notes: Core indicators can be supplemented by secondary indicators, which for category 1 could be: “Top 10% wealth share (% of total household net wealth)”, “Regional median income gap (% difference)” and “Life expectancy gap by educational attainment (number of years)”; and for category 2: “Skills mismatch (%)”, “Unemployment gap, by education (% points)”, “Average employment gap, disadvantaged people (% points)” and “Employment rate of prime age workers (%)”.
Source: OECD Secretariat.

For steady implementation of inclusive growth policies, it is essential that a measurement framework continuously checks whether each policy is operating properly. This process should be complemented by reinforcing fairness and transparency in the policy-making process in order to reach a social consensus on the necessity of inclusive growth policies and to increase public trust.

Box 1.7. From well-being measurement and evidence-building to a well-being budget and mainstreaming in policy-making in New Zealand

Well-being measurement in New Zealand has a long history and spans multiple ministries and public bodies. As early as 2001, the Ministry of Social Development published its first Social Report (Ministry of Social Development, 2001[77]), with very similar domains to those included in both the OECD approach and the Living Standards Framework Dashboard, which are compatible with the Dashboard on Inclusive Growth.

Data availability expanded significantly in subsequent years, particularly in the social and environmental domains. In 2008 and 2010, Stats NZ produced two iterations of Measuring New Zealand’s Progress using a Sustainable Development Approach, building on the earlier Monitoring Progress Towards a Sustainable New Zealand Reports from 2002 and 2003 (Stats NZ, 2011[78]). In 2011, a paper by the Treasury provided a snapshot of New Zealand’s Living Standards (New Zealand Treasury, 2011[79]) Also in 2011, Stats NZ released the first prototype of its Integrated Data Infrastructure, a large database containing microdata about people and households from a wide range of government agencies, Stats NZ surveys and Census, as well as non-government organisations (Stats NZ, 2018[80]) This infrastructure provides a rich source of information for the Social Investment Agency, which strategically advises the government on improving outcomes for New Zealanders.

Since its establishment in 2015, the Agency has produced various case studies on using a well-being approach to public policy, including on the well-being impacts of social housing (SIA, 2018[81]). The Ministry for the Environment and Stats NZ launched their Environmental Reporting series the same year (Ministry for the Environment and Stats NZ, 2015[82]) The Treasury’s 2018 Living Standards Framework Dashboard is a natural extension and consolidation of this previous work. Stats NZ’s Indicators Aotearoa New Zealand, is a further large-scale well-being and sustainability dataset launched in mid-2019.

In 2019, New Zealand adopted its first well-being budget which focuses on the outcomes that meet the needs of present generations, while considering the long-term impacts for future generations. It also tracks progress with broad measures of success, including healthy finances, natural resources, people and communities. The five priorities for 2019 are: supporting mental wellbeing for all New Zealanders; reducing child poverty and improving child well-being; lifting Māori and Pacific incomes, skills and opportunities; supporting a thriving nation in the digital age through innovation, social and economic opportunities; creating opportunities for productive businesses, regions, and communities to transition to a sustainable and low-emissions economy.

Going forward, the ambition is to continue with a well-being budget in 2020 and beyond, and to mainstream the well-being approach into policy-making at large well beyond the fiscal process.

Source: Adapted from (OECD, 2019[83]), OECD Economic Surveys: New Zealand 2019, OECD Publishing, Paris, https://doi.org/10.1787/b0b94dbd-en; (New Zealand Treasury, 2019[84]), The Wellbeing Budget, https://treasury.govt.nz/publications/wellbeing-budget/wellbeing-budget-2019-html.

Conclusion: Making inclusiveness happen in Korea

It is high time for Korea to address the inequalities that have built up in society – from the disparities between workers and the productivity gaps between chaebols and the rest, to intergenerational divides to social isolation to perceptions of policy capture. In the context of an ageing society, the digital transformation and the changing nature of globalisation, in the next two years, the administration should concentrate on measures that address inequalities and support the acquisition of skills for the future, while boosting economic dynamism, innovation and entrepreneurship in a cohesive approach.

Low and no-cost measures that can be implemented without delay include campaigns that address attitudes and stereotypes regarding women’s career opportunities (e.g. boosting girl’s and women’s participation in STEM), their participation in the labour market and in public life. Collaborative efforts across the responsible Ministries and institutions should be stepped up to continuously equip people with the skills needed to harness the potential of the digital transformation. In particular, investments in the skills for older workers, in combination with other dedicated measures to prolong their working lives (e.g. wage peak system and combatting stereotypes that hamper the retention of older workers) will boost their contribution to public budgets, as well as delay and reduce the pressures of an aging society on public spending. Policies should also aim to broaden the opportunities for young people, for example quality vocational education with placements and apprenticeships in industries

Korea should also use the available fiscal space to continue expanding the social safety net, notably the coverage of child support, of the Employment Insurance (EI) system, and the coverage and level of the Basic Livelihood Security Programme (BLSP), while also targeting the measures to those in need. Korea should also remain a leader in the promotion of R&D through investment in innovation; however, support to key industries should be designed in a way that supports the wider economy (e.g. by engaging SMEs and encouraging regularisation of workers and diversity hire) and does not impede the innovation potential in other industries (i.e. those that have not been selected by the government).

With respect to the labour market (discussed in detail in Chapter 2), without immediate policy action, emerging forms of work can deepen the income and well-being disparities that stem from the dualism of the labour market between regular and non-regular workers, which is a pre-existing structural challenge.

Against this backdrop, the following key policies are key for fostering the development of an inclusive labour market in Korea: (i) Reduce differences in employment practices and make employment protection for regular workers more predictable, while increasing social insurance coverage for non-regular workers and improving their access to active labour market policies; (ii) Build an effective system of lifelong learning based on National Competency Standards (NCS) to ensure that workers can use and upgrade their competences throughout their working lives; and (iii) Facilitate inclusive dialogue with social partners and other relevant stakeholders and, where necessary, adapt today’s labour market, skills and social policies to emerging needs. It is also important to set up an effective evaluation framework to assess progress in implementing the policies to support more inclusive labour markets in Korea.

With respect to productivity and business dynamism (discussed in detail in Chapter 3), the main three priorities for Korea in the next two years are: (i) to create a level playing field between manufacturing and services for tax policy and government support; (ii) to address size contingencies in schemes supporting firms and in labour laws; and (iii) to promote competition through trade and investment liberalisation and by addressing unfair business practices faced by small firms.

The first priority can be seen as a first step towards more ambitious regulatory reforms for the service sector, while starting with a reasonable objective that could send the signal that services matter as much as manufacturing activities for the government. This process was already initiated in July 2019 with the announcement of such a reform.

The second priority requires looking at some of the laws already discussed in the context of labour market reforms, such as support for young workers, limits on temporary employment or working hours. Since these laws are already under review, the additional action would limited to taking into account the role of size thresholds and how they sometimes discourage small firms from growing and graduating from the SME category.

Finally, the third priority is more challenging in terms of a short-term policy agenda but is essential to improve business dynamism and to have a significant impact on productivity. Foreign competition not only helps to boost the productivity of domestic firms but also allows small firms to find a new market (unlike the domestic one where only dominant Korean firms operate). This can be achieved by adopting measures addressing directly unfair business practices involving large firms, which are also necessary to discipline foreign companies that will enter the Korean market.

In the area of governance, the current administration can take steps to step up and formalise coordination mechanisms across ministries, other institutions and stakeholders to ensure a whole-of-society buy-in for the growth model that puts people at the centre of policies for inclusiveness and innovation. This should include the development of a comprehensive measurement framework for tracking progress and evaluating policy effectiveness, which is also embedded in the budgeting cycle. While the building of trust will be a continuous, long-term process, a first crucial step is for the administration to demonstrate that it acknowledges the inequalities that have been nurtured by the previous export-led growth model and is adamant to address them.

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Annex Table 1.A.1. Dashboard on Inclusive Growth in Korea
Category	Core indicator		Korea	OECD Average	G7	Australia	Spain	Sweden	The Netherlands
1. Growth and equitable sharing of benefits from growth	1.1	GDP per capita growth (%) from 2012 to 2018	2.52%	1.67%	1.18%	0.87%	2.01%	1.41%	1.35%
	1.2	Median income level (USD PPP) in 2017	26 755	23 563	26 669	31 671	21 980	30 259	29 397
	1.3	S80/20 share of income (ratio) in 2017 or latest	7	5	6	6	6	4	..
	1.4	Bottom 40% wealth share (% of household net wealth) in 2016 or latest	6%	2.5%	2.7%	4.9%	6.9%	..	6.9%
	1.5	Life expectancy (number of years) in 2017 or latest	82.7	80.8	81.8	82.6	83.4	82.5	81.8
	1.6	Mortality from outdoor air pollution (deaths per million inhabitants) in 2017	347	378	373	200	370	226	401
	1.7	Relative poverty rate (%) in 2017	17.0%	12.0%	12.0%	12.0%	15.0%	9.0%	..
2. Inclusive and well-functioning markets	2.1	Annual labour productivity growth from 2012 to 2018 (%)	2.78%	1.28%	0.89%	0.95%	0.62%	0.98%	0.59%
	2.2	Employment-to-population ratio (%) in 2018	60.7%	58.7%	56.8%	62.2%	49.7%	68.5%	61.8%
	2.3	Earnings dispersion (inter-decile ratio) in 2017	4.3	3.5	3.7	3.1	3.1	2.1	3.0
	2.4	Female wage gap (%) in 2018 (2019 in Korea)	32.5%	13.0%	16.4%	11.7%	11.5%	7.3%	14.1%
	2.5	Involuntary part-time employment (%) in 2018	..	3.4%	4.2%	9.0%	8.3%	2.0%	3.1%
	2.6	Digital access (Businesses using cloud computing services) (%) in 2018	17.2%	32.1%	36.0%	44.5%	22.0%	57.2%	48.2%
	2.7	Share of SME loans in total business loans (%) in 2017	80.2%	46.3%	24.8%	30.9%	50.1%	39.6%	38.3%
3. Equal opportunities and foundations of future prosperity	3.1	Variation in science performance explained by students’ socio-economic status (%) in 2018	8.0%	12.8%	12.0%	10.0%	10.0%	12.7%	13.0%
	3.2	Correlation of earnings outcomes across generations (coefficient) (late 2000s)	40%	38.4%	43%	35.0%	28.0%	25.8%	39.0%
	3.3	Childcare enrolment rate (children aged 0-2) (%) in 2017	53.4%	26.9%	34.0%	39.6%	36.4%	46.6%	59.3%
	3.4	Young people neither in employment nor in education & training (18-24) (%) 2018 (2017 for Korea)	18.4%16	12.8%	14.4%	10.8%	19.1%	8.9%	7.%
	3.5	Share of adults who score below Level 1 in both literacy and numeracy (%) in 2015	20.6%	26.6%	..	21.5%	35.7%	17.5%	15.6%
	3.6	Regional life expectancy gap (% difference) in 2015 or latest (2014 in Korea)	2.5%	2.9%	4.6%	6.1%	2.6%	1.6%	2.1%
	3.7	Resilient students (%) in 2015	13.5%	11.3%	11.8%	13.1%	0.4%	11.4%	12.6%
4. Governance	4.1	Confidence in government (%) in 2018	24.0%	45%	43%	47.0%	29.0%	49.0%	66.0%
	4.2	Voter turnout (%) 2018 or latest (2017 Presidential election in Korea)	77%	68.4%	67.5%	92.9%	71.8%	87%	81.9%
	4.3	Female political participation (%) in 2018	17%	29.3%	25.5%	28.7%	39.1%	43.6%	38.0%

Annex Table 1.A.2. Sustaining growth and equitably sharing the benefits from growth in Korea
Indicators	Key results in Korea
1.1 GDP per capita growth	GDP per capita increased by 2.52% p.a. over 2012-18 (OECD average 1.61%) and 2.18% p.a. over 2017-18 (OECD average 1.76%).
1.2 Median income growth and level (USD PPP)	Median income reached USD 26 755 in 2017, above the OECD average of USD 23 563.
1.3 S80/20 share of income	The ratio between the top 20% and lowest 80% income earners was 7.0 in 2017, compared to the OECD average of 4.8.
1.4 Bottom 40% wealth share and top 10% wealth share	The bottom 40% held on average 6.0% of total wealth, compared to 2.4% on average across the OECD (2016 or latest).
1.5 Life Expectancy	Life expectancy increased to 82.7 years in 2017 (OECD average 80.8 years).
1.6 Mortality from outdoor air pollution	Outdoor air pollution contributed to 347 deaths per million inhabitants in 2017, up from 328 in 2011, but remains below the OECD average of 378 in 2017.
1.7 Relative poverty rate	About 17% of the population was experiencing relative poverty, with income below 50% of the median income in 2017, compared to 12% on average in the OECD.

Annex Table 1.A.3. Supporting business dynamism and inclusive labour markets
Indicators	Key results in Korea
2.1 Annual labour productivity growth and level	Annual labour productivity increased on average by 2.78% over 2012-18, compared to the OECD average of 1.32%.
2.2 Employment-to-population ratio	Employment-to-population increased from 59.8% in 2013 to 60.7% in 2018, compared to the OECD average of 58.7% in 2018.
2.3 Earnings dispersion	The top 10% earned 4.3 times more than the bottom 10% in 2017, compared to the OECD average of 3.5 times.
2.4 Gender pay gap	Women earn significantly less than men, with a 32.5% gender pay gap in 2019, compared to the OECD average of 13.0%.
2.5 Involuntary part-time employment	N/A; missing data.
2.6 Digital access	Digital opportunities are not fully seized: 17.2 of companies used CCS in 2018, compared to the OECD average of 32.1%.
2.7 Share of SME loans in total business loans	80.2% of total business loans are allocated to SMEs in 2017, compared to the OECD average of 47.4%.

Annex Table 1.A.4. Investing in people and places left behind, providing equal opportunities
Indicators	Key results in Korea
3.1 Variation in science performance explained by students’ socio-economic status	8% of the variation in students’ science performance was due to their socio-economic status in 2018 (OECD average was 13%).
3.2 Correlation of earnings outcomes across generations	Limited intergenerational mobility: 40.0% of earnings were explained by parents’ situation in 2014, similar to the OECD average of 38.4%.
3.3 Childcare enrolment rate	56.2% of children (age 0-2) were enrolled in childcare in 2017, significantly above the OECD average of 26.9%.
3.4 Young people neither in employment nor in education & training (NEET)	In 2017, 18.4% of the Korean population 18-24 years old were NEET; compared to the average OECD NEET of 12.8%.
3.5 Share of adults who score below Level 1 in both literacy and numeracy	20.6% of adults performed poorly in literacy and/or numeracy in 2015, compared to the OECD average of 27.1%.
3.6 Regional life expectancy gap	Regional life expectancy gap was 2.5% in Korea (in 2014), compared to 2.9% in the OECD on average (in 2015).
3.7 Resilient students	13.5% of resilient students among disadvantaged students in 2018, above the OECD average of 11.3%.

Annex Table 1.A.5. Building efficient and responsive governments
Indicators	Key results in OECD countries
4.1 Confidence in government	24% trusted the government in 2018, compared to the OECD average of 45%.
4.2 Voter turnout	About 77% cast their ballots in the latest election, above the OECD average of 68%.
4.3 Female participation in politics	No gender parity in politics and institutions, the proportion of female MPs in the National Assembly was 17% in 2018, compared to the OECD average of 29%.

Notes

← 1. The ratio between the top 20% and lowest 80% income earners. Income is defined as disposable income in a particular year (earnings, self-employment, capital income and public cash transfers minus income tax and social security contributions).

← 2. For Korea, the NEET rate of 18.4% is for the age group 15 to 29 years. The statistic does not capture the share of youth engaged in unofficial education.

← 3. Earnings dispersion refers to the ratio of the earnings top and bottom deciles.

← 4. GVC participation is defined as the use of foreign intermediates and integration into international production networks.

← 5. Servitisation is defined as a trend to increasingly export services together or bundled with manufactured goods to add value and better serve customer needs.

← 6. The quality of life in Korea, measured by housing, occupation, community, environment, health, safety, work-life- balance, was lower than the OECD average, except for education and citizen participation in 2017 (OECD, 2017[5]).

← 7. As a long-term national growth plan, “Vision 2030” increased the welfare budget and conducted regulatory reforms to overcome social bipolarization and strengthen social safety nets. The model emphasized innovation and openness while stressing a quality human resource base and social capital as the foundation of the policies.

← 8. The Lee Myung-Bak administration (2008-13) pursued a green growth strategy to expand future growth engines through the harmonious development of the environment and the economy. The Park Geun-Hye administration (2013-17) focused on the “Creative Economy” initiative, along with a three-year economic innovation plan intended to create new industries and markets. These policies were by and large pro-growth.

← 9. A KOR 12 trillion fund was created to support business scale-ups, and a special guarantee program for potential unicorn companies was introduced.

← 10. The thematic areas are finance, environment, culture/media, transportation, healthcare, logistics/distribution, IT, SMEs, forestry, and regional economy.

← 11. BIG3 industries are system semiconductors, bio-health, and future cars.

← 12. Hiring based on merit with special care taken to ensure procedures are free from biases related to a candidate's age, race, gender, religion, sexual orientation, and other personal characteristics.

← 13. For example, in 2020 the Ministry of SME’s and Start-ups is introducing a programme that aims to encourage SMEs in every sector to adopt and utilize new technologies.

← 14. Central sectors reflect those that are highly connected (both directly and indirectly) and influential within global production networks, whereas peripheral sectors exhibit weak linkages and are less influential.

← 15. E-people is an online portal system that integrates petition, proposal and policy discussion services operated by about 900 governmental organisations, including central and local bodies and institutions.

← 16.

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