Employment Elasticity Hits Post-2018 Low, Economic Sentiment Expected to Lag

Although this year's economic growth outlook is positive, analysis suggests that 'employment elasticity,' which shows how much new jobs are created, has fallen to its lowest point since 2018, potentially leading to a slowdown in perceived economic conditions. Low employment elasticity means that even when the economy grows, jobs do not increase proportionally.

The Korea Development Institute (KDI) forecasts South Korea's economic growth rate at 2.5% this year, but projects job growth to be only 170,000 (0.6%). Consequently, the projected employment elasticity for this year stands at 0.24, the lowest figure since 2018. The Bank of Korea estimates this year's economic growth at 2.6% and anticipates an increase of 180,000 jobs. Based on these figures, this year's estimated employment elasticity is also calculated to be around 0.24. Despite improvements in growth rate forecasts, the structure anticipates that the increase in the number of jobs will not keep pace. Notably, in the first quarter, economic growth was high at 3.8%, but employment growth was only 0.16%, reflecting this trend with an employment elasticity of 0.16.

This slowdown in employment elasticity is weakening the perceived impact of actual job creation, despite improvements in macroeconomic indicators like the semiconductor boom. The semiconductor industry, due to its capital-intensive nature focused on facility investment, has a relatively limited job creation effect. The drive for operational efficiency among companies due to the spread of artificial intelligence (AI) is also acting as a factor constraining job creation. This trend is evident in cases where youth employment has decreased following the widespread adoption of generative AI. The number of employed individuals aged 15-29 has fallen year-on-year for every month from January to May.