South Korea’s unemployment will rise above the natural level this year as the result of stagnant growth in the economy, according to the projection of the Organization for Economic Co-operation and Development (OECD).

According to OECD data released on Monday, Korea’s unemployment gap is expected to hit 0.03 percent, its first reverse to positive since 2013. The unemployment gap refers to the difference between the actual unemployment and estimated natural unemployment rates, which reflects the number of unemployed due to the country’s labor force structure such as those replaced by automation. A positive unemployment gap means actual unemployment rate has outrun the natural level.

Korea’s unemployment gap has hovered below zero from 2014 until 2018, although jobless rate rose from 3.5 percent to 3.8 percent over the same period. Experts explain that such trend was possible because the natural unemployment rate itself had gone up due to changes in the structure of labor force, such as low-birth, aging population and transition to automation.

In fact, private-run Hyundai Research Institute in a report had estimated the country’s unemployment rate, with impacts from minimum wage hike removed, rose to 3.6 percent in 2015-2017 from 3.4 percent in 2011-2014.

Korea’s central bank in its study released late last year showed the long-term unemployment has grown continuously since 2014 due to structural changes within Korea’s economy.

“Natural employment rate started to go up in 2017 in line with changes in economic structure,” said Sung Tae-yoon, Yonsei University economics professor. “From this year, the jobless rate will likely top natural unemployment rate due to the economic slowdown,” he added.

The country’s economy is also expected to grow slower than it’s the potential rate this year. The OECD projected Korea’s output gap, which refers to the difference between actual and potential gross domestic product (GDP) at -2.28 percent for this year. The figure is the lowest since 1999 in the wake of the Asian financial crisis. A negative output gap occurs when actual economic output is below the economy`s full capacity.

The OECD in January projected Korea’s potential GDP would gain 2.5 percent in 2020 and 2.4 percent in 2021, slowing from 2.7 percent in 2019. A potential growth rate refers to the maximum output an economy can achieve by making the most of available resources without overheating the economy.

By Lim Sung-hyun and Cho Jeehyun

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