Sustainable population policy for sustainable growth

By Song Kyung-jin

On July 25, the International Monetary Fund (IMF) released its updated World Economic Outlook. It adjusted the global economic growth rate upward to 3 percent from 2.8 percent in its April forecast. The growth rate of the Korean economy for the same period was revised down to 1.4 percent, a decrease of 0.1 percentage point from the April forecast of 1.5 percent. Last year, the global share of the Korean economy fell to 1.7 percent, dropping to 13th from the previous 10th position. It is predicted to decrease to 1.6 percent by 2028.

Korea's smaller-than-expected growth has much to do with the country's falling growth potential. An economy's growth potential is determined by three components ― total factor productivity, labor input and capital input. Korea's National Assembly Budget Office projected the growth potential to be 2.3 percent between 2020 and 2024, with the least contribution from labor at 0.5 percentage points only. A private think tank projected the labor contribution to be negative 0.6 percentage points for 2021-25.

This immediately brings our attention to the drastic demographic change with a declining population. Korea has the lowest birthrate in the world, 0.78 as of 2022 and falling. A decrease in population leads to a labor shortage and thus in production and consumption. As a result, economic growth slows down. In addition, an increase in the proportion of the elderly population increases the dependency ratio and sharply increases the welfare and medical budget for older people, alluding to the need for higher productivity in the economy. Government policy should therefore be geared toward resolving the stumbling blocks and providing an enabling environment for childbirth and rearing in a reasonable and sustainable manner.

Korea's policy has focused largely on childbirth subsidies, improvement of the parental leave system and expansion of child care facilities. Despite huge budget inputs, the policy measures have fallen short of success in reducing the actual economic and social burden. For instance, how many men are comfortable taking parental leave? As of 2021, 26.3 percent of those on parental leave were fathers. The participation rate plunges in the banking and insurance sector with only 3.4 percent. How many women and men can take parental leave without fearing its adverse impact on returning to work and promotion? How many women are compelled to take parental leave because they are women? Full integration of gender perspectives is critical to effective delivery of demographic policy.

The right diagnosis precedes the right prescription. Korea is a fiercely competitive society that puts high value on education. Your school certificates determine your future income. Korean households end up spending exorbitantly on private tuition, but unfortunately, it is not a sure guarantee for the children's success at school. So, more are opting out of childbirth and rearing. People need to be assured that plumbers can earn as much as white-collar workers so that all income earners can decide to have a child.

Even with an adequate policy put in place and implemented, it will take a minimum of 15 to 20 years for such a policy to address the labor shortage. Policy debate on importing immigrant workers has increased commensurately. Thoughts on recruiting ethnic Koreans in China and central Asia are gaining more steam. Supporters of this idea assume the ethnic Koreans will speak the same language and share the same culture. We should learn from the failure of Japan that sought ethnic Japanese from Brazil. They, too, thought the cultural and societal problems from their reassimilation would be minimal, but it turned out otherwise.

Korea perhaps need not worry too much about importing low-skilled or semi-skilled workers when automation is replacing many low-skilled jobs. Caregiving, which is hard to automate, should be dealt with separately. We need more caregivers and nurses to look after older people. In drafting national policy, drawing lessons from the failures of others will benefit. For example, we must not repeat the mistake of our neighbor. Japan imported nurses from the Philippines and Indonesia for its older population. Unreasonably, however, Japan required foreign nurses to take Japan's national nursing examination in Japanese. Many foreign nurses failed to pass the test and left Japan for better opportunities in the United States, Canada and elsewhere.

Korea should put the most effort into recruiting talent from around the world. Sustainable economic growth depends on the work force the economy has in place to innovate. Even more time and effort should be channeled into how to retain the recruited workers. Workers highly pursued by all competing nations will not stay if work and living conditions are not satisfactory, including competitive salaries, good international schools to send their kids to, accessible hospitals and recreational facilities, among others.

Koreans must do away with the illusion that Korea is a homogenous society with homogeneous people and culture. Korea is already a multicultural society. This awareness and openness will help Korea's demographic policy to get on the right track.

Dr. Song Kyung-jin (kj_song@hotmail.com) led the Institute for Global Economics (IGE), based in Seoul and served as special adviser to the chairman of the Presidential Committee for the Seoul G20 Summit in the Office of the President. Now, she is executive director of the Innovative Economy Forum.