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Korea has achieved robust economic growth relative to other OECD countries since the financial and economic crisis, but its growth prospects are burdened by high levels of household debt and, in the medium term, rapid population ageing. Key areas of reforms include boosting competition in services sectors and promoting labour force participation of women.
Previous Going for Growth recommendations include:
- Reduce barriers to entry for domestic and foreign firms in networks and services so as to boost productivity through stronger competition.
- Encourage female labour force participation notably by expanding affordable, high-quality childcare services, encouraging better work-life balance and reducing duality in the labour market.
- Reform employment protection to reduce labour market dualism, by reducing employment protection on regular workers while expanding social protection for non-regular workers.
- Shift the tax burden from direct to indirect taxes by relying more on value-added, environmental or property-holding taxes, while keeping labour income tax low.
- Reduce producer support to agriculture and lower barriers to agricultural imports so as to ease burden on consumers.
Actions taken: Notable reforms in these areas over the past two years include:
- The 2012 Korea-US Free Trade Agreement, which will reduce the ceiling of foreign ownership in telecommunications.
- Expansion of public subsidies to early childhood education along with increase in number of childcare centres. Possibilities for parents to take additional leave or work part-time after the period of maternity leave have been extended.
- Extension of on-the-job training programmes to non-regular workers.
The report also discusses the possible impact of structural reforms on other policy objectives (fiscal consolidation, rebalancing the current account and reducing income inequality). In the case of Korea, increased provisions of childcare services and training opportunities for non-regular workers may involve substantial up-front budgetary costs, but also help reduce income inequality by increasing labour participation by women and facilitating the transition of workers from non-regular to regular status. Stronger domestic and foreign investment in network and service industries can help reduce Korea’s large current account surplus.