South Korea Faces Fastest Low Birthrate and Aging Population... Measures Needed to Strengthen Growth Potential

Hankyung Research Institute Analyzes 'International Comparison and Policy Implications of Low Birthrate and Aging Trends'
Based on Statistics from 37 OECD Countries, 1970-2018

[Asia Economy Reporter Kim Heung-soon] A recent survey by a private research institute revealed that among the 37 OECD countries, South Korea has the fastest rate of low birthrate and aging over the past 50 years.

The Korea Economic Research Institute (KERI), under the Federation of Korean Industries, announced on the 3rd that based on OECD statistics from 1970 to 2018, it analyzed the "International Comparison of Low Birthrate and Aging Trends and Policy Implications," emphasizing the need to prepare mid- to long-term measures to address the erosion of growth potential and weakening fiscal capacity caused by low birthrate and aging.

Total Fertility Rate Decreases by 3.1% Annually
Fastest Among 37 OECD Countries
Aging Rate Also the Highest

According to OECD statistics, South Korea's total fertility rate dropped from 4.53 in 1970 to 0.98 in 2018, decreasing by an average of 3.1% annually, making it the fastest decline among the 37 OECD countries.

The aging rate also increased by an average of 3.3% annually during the same period, making South Korea the fastest aging country among the 37 OECD members. South Korea entered the "Aging Society" (elderly population ratio over 7%) in 2000 and reached the "Aged Society" (elderly population ratio over 14%) within 18 years. Following this trend, the OECD predicts that South Korea will enter the "Super-Aged Society" (elderly population ratio over 20%) by 2026. Furthermore, by 2050, it is expected to become the third most aged country in the OECD with an aging ratio of 37.4%.

Economic Growth Rate: -0.9%p per 0.25 Decrease in Fertility Rate
-0.5%p per 1%p Increase in Aging Ratio

KERI's analysis of the impact of fertility rate and aging on economic growth showed that a 0.25 decrease in total fertility rate results in a 0.9 percentage point drop in growth rate, and a 1 percentage point increase in the elderly population ratio leads to a 0.5 percentage point decrease in growth rate. KERI explained that this demonstrates the connection between low birthrate and aging and the weakening of growth potential.

KERI argued that since the rise in the elderly population ratio is likely to cause deterioration in fiscal soundness, it is necessary to prepare measures to strengthen growth potential and secure fiscal soundness in response to the intensifying low birthrate and aging. To enhance growth potential, it pointed out the need to reform regulations related to corporate management activities and increase labor market flexibility and incentives for economic participation.

To prepare for reduced fiscal capacity, it emphasized the need to establish a legislated system that requires the government to comply with fiscal soundness obligations, except in special cases such as economic crises. Additionally, since overcoming aging through increasing fertility rates takes a long time, it suggested restructuring social and economic incentive systems related to childbirth, childcare, and education to raise fertility rates, while also considering immigration policies.

Choo Kwang-ho, Director of Economic Policy at KERI, stated, "The fact that South Korea's low birthrate and aging speed is the fastest among OECD countries means that the weakening of growth potential and deterioration of fiscal soundness will be prominent." He stressed, "Urgent measures are needed to strengthen growth potential and secure fiscal soundness, including regulatory reform, securing labor market flexibility, and establishing mechanisms to ensure fiscal soundness."

This content was produced with the assistance of AI translation services.