Korea falling off demographic cliff faster than expected

The Korea Times

The Korea Times

Finance

Mon, October 2, 2023 | 22:49

Economy

Korea falling off demographic cliff faster than expected

Posted : 2018-12-11 08:48

Updated : 2018-12-12 18:51

Policy overhaul needed to boost quality of life for children

By Park Hyong-ki

Another key indicator has shocked the economy again, following weak numbers in employment and investment ― the total fertility rate.

Statistics Korea reported the rate stood at 0.95 per woman in the third quarter of 2018, down from 0.97 in the second quarter. In 2017, it was 1.05.

The rate measures how many babies are likely to be born in a woman's lifetime. And the World Health Organization (WHO) suggested the rate at 2 per woman will help an economy maintain the "stability" of its population.

Stability, in this case, simply means if two elderly people pass away, two young people will replace them in the natural circle of life, which would not adversely affect the population and labor productivity. It, therefore, will not disrupt the "balance," according to the WHO.

If an economy has a rate of less than 2, international organizations such as the WHO and the OECD have suggested that it should overhaul and revise social and economic policies concerning education, labor, environment and immigration to fill the void left by falling population and productivity.

Korea's rate is expected to be less than 1 in 2018 and 2019, with the total number of newborns also to be far below the annual threshold of 400,000. The country ranks last among the OECD countries whose average rate is 1.68.

The falling rate closely reflects a recent survey showing more than 50 percent of the young saying, "Marriage is a choice not an obligation."

And this reflects the growing social and economic hardship amid a slowdown, analysts say.

At this rate, Asia's fourth-largest economy, beset by a decreasing birthrate, aging population and high elderly poverty, will be falling off the demographic cliff a lot faster and harder than Japan.

In 2014 when the total fertility rate stood at 1.19, the National Assembly Research Service projected that the economy will face population annihilation by the year 2750. But the zero-rate era has pushed its annihilation period forward by 100 years ― 2650.

The zero rate also indicates that the government's welfare policy of pouring billions of dollars into programs to encourage childbirth over the last decade has been an "utter failure." It spent ― or wasted ― 130 trillion won ($117 billion) over the last 13 years in an effort to boost childbirth.

The government again plans to use billions more to provide allowances to encourage young women to marry and have children.

Policy options

Analysts say the same policy approach will not work, and it is time to approach the problem from a different perspective amid the inevitable decline in population growth.

"Falling birthrate will weigh on its economic potential in the long term," said Sung Tae-yoon, an economist at Yonsei University.

"Facing the inevitable demographic cliff, we need a policy that will enable us to push the economy forward stably and sustainably, and that can increase the quality of life in the long run."

He noted policy options including improving education and inviting high and low-skilled workers from abroad can help break the vicious cycle and reinvigorate its human capital.

But whatever options the government henceforth chooses, they have to be accompanied by structural reforms and innovation.

Above all, the economy needs innovation to reshape the market that can remain sustainable even with less population, while boosting quality of life and jobs, the economist added.

Otherwise, Korea will find it more difficult to manage its pension fund, which will have to provide money for a growing elderly population, with less money coming in from the young due to the falling birthrate, analysts say.

Korea is about to go off a demographic cliff as the total fertility rate stood at below 1 percent in the third quarter of 2018. Yonhap

Slow economy, slow incomes, slow births

There are two key factors causing a decline in the number of newborn children ― income and costs of raising children, according to Kim Jung-ho, an economist at Ajou University.

Without sufficient income to meet the costs of providing a child's basic needs, such as education and housing, it can be difficult to commit to parenthood.

"It is usually best to objectively see birthrate data in annual numbers rather than in quarterly ones. But the declining trend does send a negative signal to the economy," Kim said.

"We need to see whether this decline is also in part due to people postponing childbearing or choosing not to have a child at all because of the slowdown."

At the moment, he added the demographics faces "tempo effects" as the average age of women bearing children has shifted upward.

And this would spread out the number of newborns over a longer period of time, making the fertility rate slower and lower.

The slowdown has pushed back many couples' plans for children. This is why reviving growth that would improve quality of life is essential, analysts say.

hyongki@koreatimes.co.kr