How to Overcome Losing 600,000 People a Year

(Bloomberg Opinion) -- You know times are hard in provincial South Korea when the guy selling walkers and hearing aids can only make ends meet by day trading. 

Ho Cheol Lee, 52, keeps his eyes on flashing stock quotes while his shop, crammed with wheelchairs, canes and other equipment for seniors, sits empty. Lee has run the store for roughly two decades, and his plight shows just how dire things have become. Few of his neighbors make enough money sticking to their day jobs, he says, and many have turned to selling beauty products door-to-door or scouting workers to tend the nearby garlic fields. 

This is life in Uiseong, a county in the middle of the country that’s at risk of disappearing because of declining birthrates and an aging population, according to state research institute the Employment Information Service. Uiseong is emblematic of the demographic crisis that’s emptying rural areas across the country, with almost half the population now living in the Seoul metropolitan region.

Saddled with the prospect of a shrinking workforce, the outlook for South Korea’s economy is dismal: Gross domestic product growth will struggle to hit 2% this year. Caught in two trade wars — between the U.S. and China, as well as its own with Japan — this export-dominated economy needs fresh drivers. Replenishing its population by introducing programs that encourage child-rearing and loosen immigration restrictions would be a start.   

At about 51 million people, Korea's overall headcount is still inching higher. But by 2050, the population will shrink to about 44 million. From then on, the nation will shed more than 600,000 people a year, estimates Youngtae Cho, director of the Population Policy Research Center at Seoul National University. The fertility rate sunk to below 1 child per woman last year, the lowest among countries in the Organization for Economic Cooperation and Development. By contrast, Japan's is a relatively hale 1.43.

In the go-go decades between the 1960s and the mid-1990s, Korea had the opposite problem. Policies were aimed at curbing family expansion as part of an anti-poverty drive. At that time, the rise of manufacturing and development of large industrial conglomerates, or chaebol, pushed GDP growth to an average of about 10% a year. South Korea became an “Asian tiger.”

Uiseong’s efforts are laudable, but government programs like these have done little to address the commonly cited barriers to having children. The cost of living, particularly in urban areas, is astronomical; meanwhile the brutal competitiveness of the education system and a work culture that has traditionally placed a premium on long hours leaves little time for family-rearing. Last year, President Moon Jae-in reduced the maximum work week to 52 hours from 68, though not all firms are covered by these restrictions. 

Back in Seoul, officials appear more focused on addressing a cyclical slowdown than the broader shift in economic and social life. The Bank of Korea is on its way to zero interest rates and fiscal taps are being opened to buttress slowing activity. Yet only policies that create more people have a prayer.

That’s why immigration has to be part of the solution. Foreigners make up about 3.7% of South Korea's population, according to an OECD report in January. While that’s low by global standards, the good news is that this proportion is growing fast. During a recent cross-country trip, I noticed that few of the servers at restaurants were local. Vietnamese, Chinese and South Asians took orders and whisked food to tables. “Without foreigners, work won't get done,'' Lee, the shop owner, explained. “Korean young people won't do it; the few that are left here don't want to do physical work.”

Many immigrants work in manufacturing, construction and retail, filling gaps left by aging locals. The risk is that foreigners get hemmed into low-paying jobs. Korea has attracted a lot of students from abroad in the past decade, but only 15% of graduates remain. More needs to be done to retain this talent.

Seoul National University’s Cho ranks demographics as a bigger threat than North Korea's nuclear arsenal. The North isn't predictable, he says. The population crisis is the opposite: entirely predictable, foretold by data years ago. What's required now is a policy aimed at expansion. It's every bit as vital, even more so, than defending against Kim Jong-un.

Elaine He contributed to this article.

To contact the editor responsible for this story: Rachel Rosenthal at rrosenthal21@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously he was executive editor of Bloomberg News for global economics, and has led teams in Asia, Europe and North America.

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