1% reduction in working-age population reduces GDP by 0.59%: report

A study has revealed that a decrease in the working-age population due to low birth rates and an aging population, coupled with an increase in the dependent population, negatively affects the domestic gross domestic product (GDP) and has adverse effects on the economy.

The Korea Economic Research Institute, under the Federation of Korean Industries, released a research report titled "Estimating the Impact of Population Structure Changes on GDP and Its Implications" on Thursday.

According to United Nations population data, the total population of South Korea is projected to decrease by about 11.67%, reaching 45,771,000 people in 2050 compared to 2022 (51,816,000).

The working-age population in 2050 is estimated to decrease by 34.75%, reaching 23,984,000 people compared to 2022 (36,757,000), while the dependent population is expected to increase by 44.67%, from 15,059,000 people in 2022 to 21,787,000 in 2050.

The institute conducted an empirical analysis using panel data from Organization for Economic Cooperation and Development (OECD) countries to estimate the impact of population structure changes on GDP.

Assuming other factors remain constant, it was found that a 1% decrease in the working-age population leads to a 0.59% decrease in GDP, while a 1% increase in the dependent population results in a 0.17% decrease in GDP.

Based on this, estimating the GDP in 2050 considering the changes in population structure shows a decrease of 28.38% compared to 2022. When converted to an annual growth rate, it is projected that GDP will decline by approximately 1.18% each year from 2022 to 2050.

"As the working-age population, which plays a crucial role in the economy, decreases and the dependent population increases, there is an increase in fiscal burden and a decrease in future investments, leading to a decline in economic vitality and negatively impacting GDP," said Yoo Jin-seong, a senior researcher at the Korea Economic Research Institute.

The report advised that to mitigate the economic shocks caused by population structure changes, various approaches such as improving employment rates, easing labor-related regulations, utilizing foreign workers and enhancing labor productivity need to be taken.

Write to Jae-Fu Kim at hu@hankyung.com