Here is the demographic pyramid for South Korea. The pyramid illustrates the size of the
different age cohorts in a country. The typical shape is, precisely, that of a pyramid. As you can
see, in the case of South Korea, the base has collapsed. The X-post below illustrates the
demographic drama.
As the extraordinarily low fertility indicates, population growth has fallen (in 2021 it was
negative). Unsurprisingly, given the shape of the pyramid, in the last few decades there has
been a very impressive growth in labor force participation.
a) What do you expect will happen to the rate of growth of the labor force over the next few
years? Everything else the same, what consequences do you imagine this will have on
steady state capital per efficiency unit of labor and on GDP per capita? 10 points
b) Korea has a National Pension Scheme (NPS) that operates as a pay-as-you-go system. It
covers the whole population with a replacement rate (pension/working income) similar to
that of other OECD countries with a relatively early retirement age. Given the demographic
trends, what do you expect will happen to the National Pension Scheme? What options do
you think are available to the government? Are there macroeconomic consequences that
might emerge from these options? 10 points





c) Given the trends identified above, what do you think is likely to happen to household
savings? If you think there will be changes, how would those changes alter your answers to
point (a) and (b)?

Answer rating: 100% (QA)

a With the collapse of the base of the demographic pyramid and the continued low fertility rates the rate of growth of the labor force in South Korea is likely to decline or even turn negative in the ... View the full answer