This study distinguishes the two separate channels through which population age-ing affects the growth potential, namely, the decrease in working age population and the decrease in productivity of the workforce. In order to identify the produc-tivity changes caused by rapid ageing in workforce, we make use of the employment rates of different age groups and introduce a new index of productive capacity of workforce. The index shows that the productive capacity of workforce in Korea has increased 7 percent from 1963 to 2008. But it will soon begin to decline, as long as the changes in the employment rate stays in its current course. The average real GDP growth, due to the expected productivity slowdown as well as the decreasing size of workforce, is projected to be lower than the usual forecasts, at around 3.4 percent between 2010-2020. The average growth rate will decline further to 1.3 percent in 2040s.

    In order to prop up the growth potential in Korea, it is critical to enhance the productivity of the older workers. To achieve this goal, we need to reinforce the lifetime learning program including workplace training, and to invigorate the job placement service for older workers who seek for new jobs and change their careers.