Bleak unemployment picture contrasts sharply with view that South Korea’s economy has outperformed its developed peers.
South Korea’s jobless rate surged to its highest in more than two decades, raising concern that an export-driven recovery could be masking a harsher scarring of the economy.
The unemployment rate jumped to 5.4% in January from a revised 4.5% the previous month to hit its highest level since the aftermath of the Asian financial crisis. The result outstripped all survey forecasts as the economy shed almost a million jobs from a year ago for the worst losses since 1998.
The sharp deterioration in the labor market contrasts with the view that Korea’s economy has been one of the best performers in the developed world last year and suggests the government may need to take more action to support jobs.
“The huge hit to jobs is going to weigh on the pace of economic recovery,” said Sung Tae-yoon, an economics professor at Seoul’s Yonsei University. “People looking for jobs will also decrease as the economy worsens, which may technically bring down the jobless rate, but economic difficulties will continue.”
Korea’s job market took a sharp turn for the worse in December when the government tightened its social distancing rules as daily infection cases rose to more than 1,000.
In January, the sector combining retailers, wholesalers, restaurants and hotels was hit hardest with 585,000 job losses from a year earlier. More than 340,000 positions were shed in a sector that includes public service as the government’s job-creation measures expired before a new start. Manufacturing lost 46,000 jobs.
What Bloomberg Economics Says…
“Given the hit to the economy from the latest virus wave and tighter curbs, we continue to see potential for additional extra budgets to secure the recovery.”
— Justin Jimenez, economist
While resurgent export strength has put the economy on track to reach per-capita income levels of Group of Seven nations, the unemployment jump shows the lagging impact of the pandemic is biting deeper into employment than expected as a K-shaped recovery becomes clearer.
Policy makers will likely be hoping that the situation will ease as further government support feeds in to the economy and virus restrictions are loosened further.
The government takes the situation “seriously” and will use all available options to deal with it, Finance Minister Hong Nam-ki said in a statement, blaming the job losses partly on expired fiscal support for jobs creation at the turn of the year, and a high year-earlier base.
Still, the latest figures may indicate that not enough fiscal support is coming through, or at least, not quickly enough, potentially requiring a tweaking of the timing of existing planned measures, or an outright expansion, wrote Rob Carnell, chief economist for Asia Pacific at ING.
President Moon Jae-in is also calling for incentives for companies that would share some of their profits during the pandemic with ones that suffered, a move that could indirectly support employment. Some lawmakers are putting pressure on the Bank of Korea to adopt a jobs mandate as part of its goals.
The job market outlook based on Korea’s virus caseloads looks slightly better, as the number of daily infections eased to a few hundred from more than 1,000 in December. The government is gradually relaxing its social distancing rules, allowing longer opening hours for some retail businesses such as coffee shops and gyms outside Seoul.
More fiscal stimulus under consideration may backstop workers and companies that have suffered from forced business restrictions. The government is in the process of handing out its third round of cash support as part of its pandemic relief measures, and the possibility of a fourth round has been floated.