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Low Fertility Rates and Consequences for the Economy

Low fertility rates have been one of the major concerns for the Korean economy. Low fertility rates have a substantial influence on a nation’s forthcoming national economic power. However, Korea’s fertility rate has been decreasing for decades and recorded a record low rating of 0.98 last year. To reverse this trend, the government has poured in around 150 trillion Won since 2006, but the decreasing trend is still ongoing. Thus, the Sungkyun Times (SKT) will look into the economic impact that the low fertility rate may cause under the quickly shifting economic environment.

(nytimes.com)

Korea’s Fertility Rate

Korea’s Fertility Rate (kostat.go.kr)

Around three decades have passed since Korea’s fertility rate went lower than 2.1, which is the replacement fertility level*. Now, Korea has recorded a fertility rate of 0.98, becoming the first country, which is not facing a national crisis or disaster, to reach a fertility rate below 1.0. The fertility rate of 0.98 is even lower than that of Japan, a country well-known for its super-aged population. In addition, the National Statistical Office (NSO) says the difference in the absolute number of births and deaths is only 30,000, and in this year’s statistics, which will soon come out early next year, the number of deaths is expected to outnumber the number of births.

A Survey of the Reasons Behind the Decreasing Fertility Rate (mk.co.kr)

The trend is more likely to continue for at least several years. A survey from the Korea Institute for Health and Social Affairs (KIHASA) held in 2018 states that only 49.9% of married-women responded that a child in marriage is a necessity, which is 10%p lower than that of 2015. The trend is even more difficult to turn under the struggling economy, in which more young people are avoiding marriage and giving birth.

The Threat of a Low Fertility Rate and Its Impact

The “New Normal**” and De-Globalization

There are a variety of reasons that make the low fertility rate a huge threat and even more devastating nowadays than it was before.

World Exports as Percentage of GDP (data.worldbank.org)

When world trade was in its heyday, the low fertility rate was not such a big deal as it is now. The rationale behind this is that Korea is an export-oriented country. Therefore, as the world trade volume grew, Korea grew along with the increasing world trade. After the global financial crisis in 2008, however, the paradigm that dominated the world economy transformed. The low-growth of the world economy became the “new normal”, and world trade began to shrink as people from all over the world consumed less imported goods. In addition, after Donald Trump took office in 2016, protectionism spread rapidly around the globe and presented more difficulties to export-oriented economies like the Korean economy. One solution to this situation would be to revitalize the internal market of the country, but the low fertility rate is leaving no choice for Korea at the moment.

Low Fertility Rate and the Negative Cycle

The low fertility rate and the sluggish growth of world trade volumes are giving an ever darker outlook for the Korean economy. Considering that a decrease in population leads to a decrease in consumption, a factor that makes up a huge part of a nation’s economy, it is only rational to expect the nation’s economy to shrink. The negative expectations also lead to a drop in investment from firms. In 2018, the GDP growth contribution of investment (-0.7%) was recorded as the lowest in nine years, and other indexes on investment, such as the investor sentiment index, have already been decreasing for quite some time. The low fertility rate will also result in a decrease in the working-age population. Consequently, fewer people will pay taxes, while more people will need welfare, increasing the tax burden of the working-age population. According to the NSO, the total dependency ratio is expected to hit 100 by 2056. This means that the number of people in need of support will exceed the number of people who give support. Therefore, the low fertility rate will make Korea fall into a negative cycle in all areas of its economy.

Policies and Responses Needed

Although the government poured much of its budget into the fertility rate issue, a substantial part of the budget was allocated to solutions that were not conducive to or did not have any direct relations with solving the issue. According to the KIHASA, policies directly related to low fertility rates accounted for 52 to 57 percent of the low fertility rate budget based on implementation plans between 2016 and 2018. Even if the plans were directly related to low fertility rates, the benefits were not big enough to change people’s minds about having a child.

Economic Stability Through Job Policies

Although diverse issues contribute to the low fertility rate in Korea, many of the reasons are related to economic issues and stability. In a survey of 500 men and women that Maeil Business conducted earlier this year, around 95% of the respondents answered that the reasons they do not plan on having children are because of economic reasons such as upbringing expenses and career breaks. Thus, it is necessary to devise measures that can help reduce the economic burden that young people have when raising children and adopt appropriate policies. The measures that must be considered with the highest priority are those that are directly linked to many issues related to the low fertility rate. For instance, solving the career breaks that lots of women face because of marriage or giving birth could be a solution that can improve the economic well-being of families planning to have children. One solution would be increasing the upper limits of both the length of maternity leave and the upper limits of maternity leave salaries. Moreover, backing up maternity leave with legal enforcements could help solve the diverse issues related to low fertility rates.

Adaptation to the Upcoming Change

Even if the low fertility rate policies are successful, it will take decades for these policies to take effect. The country must also prepare for the possibility of these policies failing. Thus, adapting to the upcoming change is a must. One direction is to extend the working-age and prevent career disconnections through the policies mentioned above. Furthermore, if labor productivity is increased through the bold introduction of technology and education of such technology, the burden on the economy can be reduced to a certain degree.

안유진  ge.jyn14@gmail.com

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