[Editorial] Job Creation Needed With Economic Growth

The Korea Development Institute forecast yesterday that Korea’s economy will grow 5.5 percent next year. It also urged the government to adjust its economic growth policy to achieve fiscal soundness by reducing state spending and stem inflation by raising interest rates. The state-run economic think tank recommended such changes to prevent the country’s economic recovery driven by an expansionary policy from burdening future economic management. The timing of the policy shift, however, should be carefully chosen.

To overcome the global financial crisis, Korea has spent six percent of GDP on its economic stimulus package. This bold measure has helped the economy recovery rapidly from the economic downturn, according to the Organization for Economic Cooperation and Development. It is too early to be optimistic, however, due to a number of risk factors. If a shift to fiscal austerity is made before solid economic recovery is assured, this will put a damper on the fledgling recovery and worsen the already tight job market. On the other hand, a slow policy shift will lead to an asset market bubble and delay in corporate restructuring. In the real estate market, a sudden burst of the bubble is as detrimental as its creation.

Worse, Korea’s economy has been suffering from a jobless growth phenomenon. So when the chilly job market will thaw is anybody’s guess. The gap between economic growth and employment has widened so much, President Lee Myung-bak said Friday, “Job creation hasn’t followed economic growth. That’s the problem.” The government must get economic recovery to create jobs.

In addition, policy measures to increase the quality of jobs should follow. As an emergency measure, the government expanded employment subsidies and the scope of public projects to create temporary jobs over the past year. Now is the time to craft long-term employment measures.

Even if Korea reaches its potential rate of economic growth next year, there is no guarantee that the economy will return to the path of solid growth. Due to the world’s most rapidly aging population and lowest birth rate, economic growth potential is declining and businesses are reluctant to invest. If the government’s response is not proactive at a time when fundamental reform is badly needed to enhance competitiveness, Korea will lose an opportunity to advance its economy.

The government should also brace for unfavorable external conditions down the road. On his Asia tour last week, U.S. President Barack Obama urged Asian countries to open their markets by saying a five-percent increase in American exports to the Asian market will create tens of thousands of jobs at home. His comment signals that Washington will not sit idle and watch Asia continue to record huge trade surpluses with the U.S.