Labor market. (Image courtesy of Yonhap)
SEOUL, June 18 (Korea Bizwire) — South Korea faces a steep economic cost from population decline and rapid aging, with public spending on pensions and healthcare projected to double to 20% of GDP by 2050, according to a report released Tuesday by the Bank of Korea.
In the report titled “Employment Trends and Implications Based on Population and Labor Market Structure,” the central bank warns that the number of workers needed to maintain a neutral economic pace—what it calls the “trend employment” level—is already decelerating.
The number is expected to turn negative by 2032, meaning the working population will start shrinking even if the overall economy continues to grow at its potential.
From 2025 through 2050, South Korea’s employment base is projected to contract to just 90% of its 2024 level, sharply limiting labor input as a factor in economic growth. The central bank’s forecast comes amid concerns that the country’s falling birth rate, coupled with a rapidly aging population, could undercut its long-term economic stability.
Lee Young-ho, head of labor market trends at the Bank of Korea, emphasized the severity of the situation: “Population decline combined with aging will impose considerable economic costs on Korea.”
Between January and May of this year, actual job growth slightly lagged trend expectations. The outlook for the remainder of 2025 remains weak, with concerns that President Trump’s U.S. tariff policies may further dampen Korea’s employment recovery in the second half of the year.
Impact of Declining Employment Trends (Image courtesy of the Bank of Korea)
The Bank of Korea estimates that from around 2030, Korea’s labor force will begin contracting in absolute terms. This demographic drag is expected to weigh heavily on GDP growth. Even with increased capital investment and productivity gains, overall economic growth is forecast to hover around the mid-0% range by 2050.
The impact on personal welfare will be equally significant. As the share of elderly citizens—who typically have lower labor force participation—rises, per capita GDP growth will also come under pressure. A structurally declining workforce will mean that the number of employed individuals falls faster than the population itself.
Public Pension and Healthcare Costs to Double, Bank of Korea Warns (Image supported by ChatGPT)
Public finances will feel the strain. If current conditions persist, the combined cost of pensions and healthcare is projected to surge from 10% of GDP in 2025 to 20% by 2050, the central bank said.
However, in an alternative scenario where labor force participation increases by an additional 4 percentage points by 2050—roughly the pace of the past decade—the outlook improves modestly.
Employment shrinkage would be delayed by five years, and the 2050 workforce would remain at 95% of 2024 levels. Under this scenario, per capita GDP would grow 0.3 percentage points faster annually, and the welfare burden would ease by 1.3 percentage points of GDP.
To mitigate the looming crisis, the Bank of Korea urges sweeping structural reforms aimed at boosting both productivity and labor participation. “Reversing the economic drag from demographic shifts will require fundamental reform to sustain growth and fiscal stability,” Lee said.
M. H. Lee (mhlee@koreabizwire.com)
