Shrinking Consumption Worsening Economic Crisis

Baby boomers account for 14.7 percent of the population and they enjoy relatively high income. As they reduce their consumption after retirement, domestic demand, which has been hit by the global economic downturn, has further taken a dive.

The retirement of baby boomers armed with much experience and expertise could force Korea to face unexpected problems such as a lack of workers and expertise when the economy revives.

○ Not ready for retirement

Baby boomers are aged between 46 and 54. They are likely to be hit hardest by the economic crisis.

According to data released by the National Statistical Office yesterday, the monthly income of a household whose head is aged between 50 and 59 is set at 3.83 million won (2,728 U.S. dollars), the highest among all age brackets. Earned income, however, including salary accounts for the biggest part and asset income from real estate and savings, was a mere 100,000 won (71 U.S. dollars) per month. In other words, the income of baby boomers drastically falls shortly after retirement.

As many baby boomers invested in homes when they were in their 30s or 40s, real estate is the biggest part of their assets. Hyundai Research Institute said real estate claims a whopping 80 percent of baby boomers’ assets.

The aged can affluently enjoy their golden years when they have asset income. Ironically, however, they face the "reverse wealth effect," under which asset value falls due to plunging real estate prices.

It is impossible for baby boomers to have decent jobs after retirement since the job market has gotten tight. Worse, they have insufficient money to run their own businesses and entrepreneurs face mounting difficulty due to intensifying competition.

○ Implications of baby boomers’ retirement

Baby boomers who began working in the 1980s have led consumption in Korea.

Real estate prices soared in the mid and late 1980s, when baby boomers rushed to buy homes. Housing prices skyrocketed in southern Seoul in the 1990s as baby boomers flocked there to provide high-quality education for their children. Accordingly, as baby boomers begin retiring, Korea’s consumption is unlikely to return to its glory days.

Kim Yeong-ro, head of the analysis and statistics team of the National Statistical Office, said, “Baby boomers will sell their homes but most Korean youths cannot buy them. As a result, housing demand will fall and housing prices will stabilize at a lower level.”

In Japan, housing prices have plummeted since 1990 after the population aged between 35 and 54 began falling and baby boomers began retiring. Similarly, the United States saw the subprime mortgage crisis emerge and housing prices collapse when the number of people aged between 35 and 54 began falling.

Certainly, the average age of a Korean worker has increased significantly. Given that, the retirement of experienced baby boomers could result in a lack of labor that will worsen by 2016, when Korea’s working population aged between 15 and 64 will begin declining.

○ Baby boomers in other nations

Korea is not the only nation suffering from the retirement of baby boomers. Advanced economies worry over a lack of labor and growing need for pension resulting from retirement of baby boomers.

Japan raised its retirement age from 55 to 60 in 1998 and will raise it again to 65 in 2013 to prevent retirement of the "dankai (Japan’s baby boomers)" from negatively affecting the labor market.

American baby boomers born between 1946 and 1964 are aged between 46 and 63. The number of baby boomers there is 78 million, accounting for 26.9 percent of the U.S. population.

Many American baby boomers have prepared for post-retirement life, but the economic slowdown resulting from the global economic crisis has significantly affected them.

According to the U.S. Bureau of Labor Statistics, the share of working Americans aged 55 or over last year has set a new high since 1970. In short, baby boomers who have lost big from falling stock and fund prices are returning to work.

leon@donga.com peacechaos@donga.com