OECD Secretary-General

Going social: A framework for growth and social cohesion in Korea


Remarks by Angel Gurría, OECD Secretary-General

Seoul, Tuesday 21 June 2011

(As prepared for delivery)
Dear Deputy Minister Mr. KANG Ho-in, Dear Deputy Minister Mr. PARK Ha Jung,
Ambassador Hur,
Ladies and Gentlemen,

Korea is one of the most dynamic OECD economies. It is also an example to other countries in many fields. Yesterday, we had the opportunity to participate in the “Global Green Growth Summit”, an area where Korea is a leader in new policies.

But one of the challenges Korea faces is to achieve more inclusive growth. It is a great pleasure to be with you today to launch our Framework for Growth and Social Cohesion in Korea. This report was requested by President Lee -- a testimony of the importance he attaches to the issue of inclusiveness.

Korea is not alone in its concern about the rising gap between rich and poor and the challenge of achieving job-rich growth. As elsewhere, inequality partly reflects the interplay between technological progress and globalisation, which tends to reward highly-educated workers, while leaving behind the less skilled ones and with lower education. Yet, Korea also faces specific challenges.

Let me share with you some of the reflections and recommendations of this important report.

First, labour market dualism is an important factor driving inequality in Korea. Non-regular workers – who account for one-third of employment – face precarious jobs at relatively low wages. As a result, the incidence of low-paid work is the highest in the OECD area. In addition, non-regular workers receive less protection from social insurance programmes and less on-the-job training, hindering their human capital as well as Korea’s growth potential.

Labour market reforms to tackle this duality are a priority. For example, the report calls for measures to ensure that non-regular workers are covered by the social insurance system.  Re-examining the degree of employment protection for regular workers would also help the achievement of a more equitable and better functioning labour market.

Second, education has been a key driving force of Korea’s economic miracle,  Korea’s performance on the OECD’s PISA assessment remains outstanding. But the education system should do more to promote inclusive growth in a number of ways.

For example, OECD experience demonstrates that providing early childhood education and care to children from disadvantaged families promotes their skills and reduces social inequality. However, public spending on pre-primary education in Korea is the lowest in the OECD area.

Moreover, the important role of hagwon reinforces social disparities. More than three-quarters of students attend classes at hagwon for an average of about ten hours a week, imposing a heavy financial burden on parents.

Policymakers can help by pushing ahead a common framework for high-quality early childhood education and childcare services, including lowering the costs for households so that all children can participate. Further work is also required to minimise the dependence on hagwon, thus reducing the heavy financial burden on low income families.

Third, Korea has an exceptionally low birth rate of 1.2 children. Increasing it requires lowering the financial burden on parents of educating children, investing much more in family-friendly policies in the workplace and fostering greater sharing of the childcare burden between men and women.

Fourth, the gender wage gap – the largest in the OECD area at 38% -- discourages women from entering the labour force. One-third of women have temporary contracts and only 8% have management responsibilities. Achieving better gender equality will require a wide range of policies, including better access to high-quality childcare and more family-friendly policies in workplaces.  

Last but not least, achieving more inclusive growth requires higher and better-targeted social spending. At 7.5% of GDP, Korea’s social spending is very low - the OECD average is about 20%. 

But such higher social spending needs to be achieved without weakening Korea’s very sound fiscal position. The issue is magnified by Korea’s population ageing, which will be among the most rapid of OECD countries. Today, Korea is the fourth-youngest OECD country, but by 2050, it will be the second oldest.

Tackling these challenges will require increased public spending.  Thus, room has to be made to meet these demands.

One way to boost revenue to finance rising social spending is through consumption taxes, which typically impose fewer distortions than direct taxes. Korea has considerable scope to hike the value-added tax. Its rate of 10% compares with an OECD average of 18%.

Other relatively non-distortionary taxes include environmental taxes. Their increase would help in realising Korea’s promise to be a leading light on policies to spread green growth. Taxes on property would also be more supportive of growth than on income taxes.

At the same time, supporting the financial sustainability of the National Pension Scheme requires action to increase the pension eligibility age.

Ladies and gentlemen,
Sustaining economic growth is certainly important to promote social cohesion. It helps to generate the jobs and the public revenues needed to fund social welfare.  But growth alone cannot solve all problems.
Instead, well-targeted social policies are essential to promote social cohesion and reverse the upward trend in income inequality. This is the “go social” challenge facing Korea.

This report is the OECD’s contribution to the policy debate on how to meet this fundamental challenge.
The OECD is proud to be able to work with Korea to promote better policies for better lives. 
Thank you.