Bank of Korea: "Prolonged COVID-19 Pandemic to Cause Significant Employment Rate Shock Centered on Service Industry"

[Asia Economy Reporter Kim Eunbyeol] It is expected that if the decline in the economic activity participation rate (EAPR) becomes entrenched due to the prolonged impact of the novel coronavirus infection (COVID-19), employment rate shocks will be significantly evident, especially in the service sector.

On the 28th, Park Changhyun, head of the survey team at the Bank of Korea's Research Department, stated in the monthly statistical bulletin article "Examining Factors Slowing the Rise in Employment Rate" that "Applying the trend of the U.S. EAPR decline (annual average -0.27 percentage points from 1997 to 2015) to South Korea, the employment rate in the service sector is estimated to fall from 47.9% last year to 46.7% in 2025."

Under the same scenario, the employment rate in the goods sector is expected to decrease relatively less, from 16.9% last year to 16.4% in 2025, a drop of 0.5 percentage points.

Since the rise in South Korea's employment rate is led by the service sector, the impact is expected to be significant. Park explained, "By industry, the service sector is leading the slowdown in the employment rate increase," adding, "The service sector has lower labor productivity than the goods sector such as manufacturing, and because it accounts for a large share of total demand, employment changes in the service sector explain most of the overall employment changes." Within the service sector, industries with a high proportion of self-employment, such as accommodation and food services and wholesale and retail trade, have recently shown a clear slowdown in employment rate growth.

Park added, "In a situation where labor productivity in South Korea's service sector is expected to continue improving, if the economic activity participation rate does not rise, the employment rate growth in the service sector will slow down even further."

Furthermore, to maintain the upward trend in the employment rate, efforts are needed to continuously encourage labor market participation among women and the elderly, diversify employment types, and expand employment capacity in the service sector by fostering producer services. He advised, "Especially in the situation where employment and economic activities are shrinking mainly in the service sector due to COVID-19, it is necessary to mitigate employment shocks through policy support to maintain employment in the relevant sector."