Korea saw the smallest increase in the number of additional jobs in nearly two years in January, a sign of the toll the economic downturn has taken on the labor market.

The pace of increase has slowed for eight months in a row since May last year, indicating a shrinking labor market.

According to data released by the Statistics Korea on Wednesday, the number of employed people came in at 27.36 million last month, up 1.5 percent or 411,000 from a year ago. It was the lowest on-year growth since since the 314,000 on-year growth tallied in March 2021.

By sector, job creation took place in the welfare, accommodation, restaurant and communication industries while the manufacturing sector struggled to add new jobs last month.

"The contraction of the economy seems to have affected the employment in the manufacturing industries including electronic parts, food manufacturing and electric vehicles,” said Suh Woon-joo, a senior official at Statistics Korea during a press briefing.

The fall in the number of additional jobs was partly because it was compared with January 2022 when it saw an increase of 1.13 million, buoyed by the post-pandemic recovery.

"Along with the base effect following an exceptional boom in the job market in 2022, there are also downward factors including the slowing economy and the decrease in the labor force," the Ministry of Economy and Finance said in a separate report released the same day.

The ministry said the number of South Koreans aged from 15 to 64 fell 277,000 from a year earlier in January.

While the economy added 816,000 jobs on-year in 2022, the figure this year is expected to be much lower at only 100,000, the ministry estimated.

By age, those aged 60 and older took 400,000 jobs, becoming the age group that achieved the highest growth in January. They account for 97.3 percent of the total number of newly added jobs.

People in their 50s and 30s took up 107,000 and 27,000 of the new jobs, respectively, the data showed.

The number of jobs for those in their 40s and 20s, on the other hand, moved down 63,000 and 43,000, respectively, over the period.

The unemployment rate for those aged between 15 and 29 moved down 0.1 percentage point on-year to 5.9 percent.

A hike in borrowing costs also appears to have affected the job market as companies and households reduce spending. The Bank of Korea raised its benchmark rate in January from 3.25 percent to 3.5 percent, the highest level since 2008.

The country also saw a sharp fall in exports due to weak demand for semiconductors and other items, deepening concerns over the country's economic growth momentum.