Strengthening Social Cohesion in Korea

image of Strengthening Social Cohesion in Korea

Korea is confronting a serious challenges. It has to improve income equality in the context of a severe demographic transition. Such a transition, from one of the youngest populations in the OECD at present to the second oldest by 2050, may boost the need for public spending and slow economic growth. In this context and as the pace of population ageing is accelerating, it is important to act quickly in a wide range of areas:

-Policies to sustain Korea’s growth potential in the face of falling labour inputs;

-Measures that improve both growth and equality;

-Carefully-targeted increases in social spending to reduce inequality and poverty;

-Financing higher social spending, with priority given to a reform of tax and social security that minimises the negative impact on output growth.

Against the background of these broad challenges, which are discussed in a specific, setting-the-ground, Chapter, the report suggests policy options, based on the practices and reforms of other countries, in the following four areas: I) Income Distribution and Poverty; II) Tackling the Duality of the Labour Market; III) Early Childcare; and IV) Moving beyond Hospitals to better Care in the Community.

English Also available in: Korean

Overview: Why is social cohesion an urgent issue in Korea?

This chapter examines the challenge of sustaining economic growth while encouraging social cohesion. A number of factors add to the challenge of fostering social cohesion; rapid population ageing; polarisation of the labour market between high-paid regular workers and lower-paid non-regular workers; low productivity and wages in the service sector and in small firms; and concern about the potential cost of economic rapprochement with North Korea. It is important, therefore, to advance gradually and cautiously in expanding social welfare programmes. In the face of such spending pressures, policies to sustain output growth, notably by boosting the labour force participation rate and increasing labour productivity, particularly in the service sector, are a top priority. In addition, rising public spending should be financed through tax increases designed to limit the negative impact on output growth. This suggests relying primarily on the value-added tax and environmental taxes.


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