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Korea should improve the quality of employment for older workers

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Korea should reform its employment regulations and improve social protection in order to make work more rewarding for older workers and tackle old-age poverty, according to a new OECD report.

Working Better with Age: Korea says that workers aged 50-75 years are more likely to work than their peers in other OECD countries but more often in jobs of poor quality, with low job security and wages, and limited access to social insurance. As a result, poverty rates are much higher in this age group than in almost any other OECD country.

Tackling this challenge is critical, according to the report, as Korea’s population is ageing faster than in any other OECD country. The population’s median age could reach 55 years by the mid-2050s, compared with around 40 years today. Over the same period, the old-age dependency ratio (population aged 65+ over the population aged 15-64) will increase from 20% to 70%, 20 percentage points above the OECD average.

At almost 70%, Korea’s employment rate of older workers aged 50-64 is relatively high – 6.6 percentage points above the OCED average. But most workers retire early from their main job before reaching 55 and have to start new employment or a “second career” in poor quality, highly insecure and low-paid jobs or become self-employed. Workers in Korea effectively retire at an average age of 71-73 years – the oldest of any OECD country. This implies that they typically spend 20 years in precarious employment before leaving the labour market.

For most workers, early retirement from the main job results in lower earnings and potential hardship. Korea has the second-highest rate of relative income poverty among people aged 50-64 among all OECD countries.

Structural reforms could reduce labour market duality, which affects older workers disproportionally. Measures should be taken to reduce the gap between wages and productivity, which increases with age and contributes to pushing older workers out of regular jobs, and the gap in job quality between regular and non-regular jobs.

This requires tackling employers’ practices with respect to early retirement plans while at the same time moving away from seniority-based practices for setting wages and granting promotions, reforming the hiring and dismissal rules for regular and non-regular work, and strengthening social protection. Providing good opportunities for workers to upgrade their skills and learn new ones throughout their working careers is also a key requirement for fostering longer working lives in good quality jobs.

Recent government initiatives to postpone the age of mandatory retirement, to promote a job- and competency-based system for setting wages, and to reduce working time, could help increase older workers’ productivity and improve working conditions, but questions remain as to whether these measures will be forcefully implemented.

The OECD recommends that Korea take further action in three areas.

First, employers should be encouraged to retain older workers in their main jobs, e.g. by:

  • Fostering the introduction of wage peak systems to ease the postponement of the age of mandatory (early) retirement.
  • Proactively promoting the implementation of job- and skill-based professional appraisal measures, instead of seniority-based practices.
  • Providing additional employment rights for temporary agency workers as well as new business opportunities in the temporary work agency sector.

Secondly, a number of measures could promote the employability of workers, such as:

  • Strengthening second-career guidance for middle-aged and older workers.
  • Monitoring closely the implementation of the new guidelines on working time.
  • Introducing employer-paid sick leave and a statutory cash sickness benefit to facilitate the return to the main job of workers experiencing health problems.

Thirdly, a number of measures could improve the income situation of older workers, such as:

  • Raising payments for persons over age 50 provided by the earned income tax credit and improving the coverage among older self-employed workers.
  • Targeting the Basic Pension to the most needy and increasing benefit amounts.
  • Improving the pension scheme coverage among self-employed and non-regular workers and making the scheme financially sustainable.
  • Fostering the implementation of retirement pension plans, especially in small and medium-sized enterprises.

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Archipelagic Economies: Spatial Economic Development in the Pacific

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A new World Bank report on the challenges facing the Pacific region’s outer island communities identifies investment in people and livelihoods as a key for inclusive economic growth.    

Archipelagic Economies: Spatial Economic Development in the Pacific looks at the challenges Pacific governments must address to provide services and infrastructure to populations spread across hundreds of islands spanning the vast Pacific Ocean. The report puts forward a series of practical steps that countries can take to overcome these challenges in a way that supports resilient and inclusive economic growth.

“Many Pacific countries are faced with significant challenges in delivering services and connecting remote, outer island communities; with difficult decisions around resources and how to best invest often limited resources into outer island communities,” said the report’s lead author, World Bank Lead Economist for Fiscal Policy and Sustainable Growth Robert Utz.

“This report aims to provide Pacific governments, development partners and decision-makers with evidence to assess options for fostering development for the people in those outer islands, so they can make stronger contributions to the larger economic development of the whole country.”   

The report identifies six guiding economic policy principles:

1)     Policy solutions that seek to achieve equitable increases in living standards need to be grounded in an understanding of the economic implications of the Pacific region’s unique economic geography.

2)     Outer islands’ development should be assessed from a spatial perspective; one that considers interactions with the country’s main island and the region beyond.

3)     A balanced approach that combines investments in urban areas to accommodate migration from outer islands to main islands with support for outer island populations is likely to achieve better welfare and equity outcomes than an approach that neglects one side or the other.

4)     Growth-enhancing investments should be guided by clearly-identified opportunities, rather than by a desire to try to equalize economic opportunities across islands.

5)     With limited scope to close the gap in economic opportunities between outer and main islands investments to promote livelihoods and human development should be given preference.

6)     Outer islands are subject to a complex political economy of intra-island and outer island-main island relationships that need to be considered in development interventions.

“This is an important and timely study,” said Denton Rarawa, Senior Economic Advisor at the Pacific Islands Forum Secretariat. “The current COVID-19 crisis has highlighted the need to address the institutional, service delivery and capacity gaps of nations across the Pacific. As we strive for greater vaccination rates and begin to think about how we’d like to rebuild after the pandemic, I believe this report has a lot to offer the future of the Pacific, especially in our efforts to leave no one behind.”   

The Archipelagic Economies report is a companion publication to the World Bank’s Pacific Possible series, which in 2017 and 2018 looked at opportunities for economic growth in Pacific Islands Countries across key sectors including tourism, fisheries, and labour mobility. 

The World Bank works in partnership with 12 countries across the Pacific, supporting 87 projects totaling US$2.09 billion in commitments in sectors including agriculture, aviation and transport, climate resilience and adaptation, economic policy, education and employment, energy, fisheries, health, macroeconomic management, rural development, telecommunications and tourism.

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Global economic recovery continues but remains uneven

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The global economy is growing far more strongly than anticipated a year ago but the recovery remains uneven, exposing both advanced and emerging markets to a range of risks, according to the OECD’s latest Interim Economic Outlook.

The OECD says extraordinary support from governments and central banks helped avoid the worst once the COVID-19 pandemic hit. With the vaccine roll-out continuing and a gradual resumption of economic activity underway, the OECD projects strong global growth of 5.7% this year and 4.5% in 2022, little changed from its May 2021 Outlook of 5.8% and 4.4% respectively.

Countries are emerging from the crisis with different challenges, often reflecting their pre-COVID 19 strengths and weaknesses, and their policy approaches during the pandemic. Even in the countries where output or employment have recovered to their pre-pandemic levels, the recovery is incomplete, with jobs and incomes still short of the levels expected before the pandemic.

Large differences in vaccination rates between countries are adding to the unevenness of the recovery. Renewed outbreaks of the virus are forcing some countries to restrict activities, resulting in bottlenecks and adding to supply shortages.  

There is a marked variation in the outlook for inflation, which has risen sharply in the US and some emerging market economies but remains relatively low in many other advanced economies, particularly in the euro area.

A rapid increase in demand as economies reopen has pushed up prices in key commodities such as oil and metals as well as  food, which has a stronger effect on inflation in emerging markets. The disruption to supply chains caused by the pandemic has added to cost pressures. At the same time, shipping costs have increased sharply.

But the Interim Outlook says that these inflationary pressures should eventually fade. Consumer price inflation in the G20 countries is projected to peak towards the end of 2021 and slow throughout 2022. Wage growth remains broadly moderate and medium-term inflation expectations remain contained.

The report warns that to keep the recovery on track stronger international efforts are needed to provide low-income countries with the resources to vaccinate their populations, both for their own and global benefits.

Macroeconomic policy support is still needed as long as the outlook is uncertain and employment has not yet recovered fully, but clear guidance is called upon from policymakers to minimise risks looking forward. Central banks should communicate clearly about the likely sequencing of moves towards eventual policy normalisation and the extent to which any overshooting of inflation targets will be tolerated. The report says fiscal policies should remain flexible and avoid a premature withdrawal of support, operating within credible and transparent medium-term fiscal frameworks that provide space for stronger public infrastructure investment.

Presenting the Interim Economic Outlook alongside Chief Economist Laurence Boone, OECD Secretary-General Mathias Cormann said: “The world is experiencing a strong recovery thanks to decisive action taken by governments and central banks at the height of the crisis. But as we have seen with vaccine distribution, progress is uneven. Ensuring the recovery is sustained and widespread requires action on a number of fronts – from effective vaccination programmes across all countries to concerted public investment strategies to build for the future.”

Ms Boone said: “Policies have been efficient in buffering the shock and ensuring a strong recovery; planning for more efficient public finances, shifted towards investment in physical and human capital is necessary and will help monetary policy to normalise smoothly once the recovery is firmly established.”

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Financing Options Key to Africa’s Transition to Sustainable Energy

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A new whitepaper outlining the key considerations in setting the course for Africa’s energy future was released today at the 2021 Sustainable Development Impact Summit. The report, “Financing the Future of Energy,” outlines Africa’s electricity landscape and financing options in context with the global drive to reduce carbon emissions.

Africa’s power sector will play a central role in the transition from fossil fuel-driven power generation to a renewable-strong energy mix. According to the whitepaper written in collaboration with Deloitte, the migration to a multi-stakeholder-oriented net-zero power grid is being driven by “the 3Ds:”

  • Decarbonization: moving from fossil fuel sources to renewables
  • Decentralization: Shifting from centrally managed generation, transmission, and distribution to decentralized systems
  • Digitalization: Leveraging digital technology to advance the transition

The report contends that new coalitions and investments with developed nations and NGOs including the World Economic Forum must coordinate and enable countries to leapfrog existing technologies and infrastructure.

“The need for digitally smarter utility platforms and sustainable development programs will guide global leaders in helping to shape equitable and inclusive recovery programs,” said Chido Munyati, Head of Africa at the World Economic Forum. “The entire continent remains vulnerable, but this whitepaper offers a view on what are viable financing options that exist today for clean energy sustainability and equitable recovery for all of Africa.

Funding will be the biggest hurdle to ensuring Africa’s sustainable transition to Renewables at scale; there are many financing solutions available,” said Mario Fernandes, Director, Africa Power Utilities and Renewables, Deloitte. “Africa’s winners will be the ones that are able to leverage what exists while creating an enabling environment for the private sector through a Renewables Energy Investment facility.”

Case studies in China and India showed that financing solutions for a clean energy transition often involve long cycles. Economic booms in these countries resulted in a significant shift in carbon emissions. Since similar economic booms are expected across Africa, the report highlights how crucial it is to anchor growth in technologies that can enable lower emissions.

While Africa’s contribution to greenhouse gas emissions from fossil fuel significantly lags behind those of other continents, it still carries a huge potential to accelerate the transition to a net-zero future. Currently, half of the continent lives without adequate access to electricity. As energy demands increase, the energy gap could be bridged through clean energy alternatives, if the financing solutions are employed now.

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