The Korean economy is at risk due to the low fertility rate. The nation's fertility rate is among the lowest in the world at 1.25 births per woman and it ranks 220th among 224 nations around the world. The nation's working age population will also begin to decrease stating this year. As such, the Korean economy is facing a population decline crisis. We'll take a closer look at the effects the low birthrate and aging population brings on the economy with Dr. Lee Geun-tae of the LG Economic Institute.
Generally we say the working age population is people from the ages of 15 through 64. This population reached a peak last year and started to decline this year. According to the Statistics Korea, the population of people from the ages of 15 through 64 increased from 13.7 million in 1960 to 37.63 million last year, but decreased to 37.62 million this year and the working age population is expected to decrease rapidly in the future.
The working age population refers to people from the ages of 15 to 64 who are capable of performing economic activities without difficulty. They are the pillars of a society's economic growth. However, this is the first year that Korea's working age population started to decline and the elderly population above 65 years of age was higher in number than those between the ages of 0 and 14. At this rate, the working age population is expected to be less than half of the entire population while those over the age of 65 will reach 41% of the population. The bigger problem is the rate of this change.
First off, the problem is that the speed at which the working age population is declining is much faster compared to the aging process. Advanced European nations have already become aged societies with the elderly accounting for over 14% of the entire population from the 1980s. However, their working age population started to decline from the 2010s. In other words, they had around 20 years before their working age population started to decrease after they became aged societies. However, for Korea the working age population decline is actually happening first as the nation's elderly population is expected to reach 14% next year. This is due to the rapid decrease of the younger generation because of the low fertility rate which led to an aging society compared to European nations. Also, because Korea's working age population is declining so rapidly, the elderly will have to take the place of young workers. In Korea, the main workers of society between the ages of 20 through 40 will be rapidly declining while the number of elderly above 60 will surge all at the same time. In other words, the elderly will have to replace the youth workforce.
The rate at which Korea's working age population is declining is faster than any other country in the world. For European countries, their working age population started to decline 10 to 20 years after they became aged societies where their elderly population reached 14% of their total population. However, Korea's working age population will start to decline this year and it will become an aged society next year. This population change brings about a lot of changes in the economy. The working age population is a society's main producer and spender. However, if their numbers start to decrease, a country's growth potential becomes that much weaker while their labor market as well as their welfare, education, defense and overall society is affected.
It may seem like coincidence, but there are many cases when countries experience economic crises around the time their working age population decreases. A case in point is Japan. Japan's working age population started to decline from 1995 but the "lost 20 years" had already started for them in 1991 as their real estate bubble burst. Although Japan's real estate bubble and its subsequent burst was pointed out as the direct reason for the economic crisis, but it would be difficult to say that their demographic change did not play a major role. It was because the decline of those between the ages of 15-64 who were the major producers and consumers of society not only reduced the country's production capacity but also shrank demand. Moreover, fiscal deficits and expanding national debt are also recognized as important side effects of aging society.
Taking a look at countries that experienced a decline in their working age population, Japan and Southern European countries saw their real estate bubbles burst while consumer stagnation caused negative economic crises. Of course, population decline would not be the fundamental cause of an economic crisis. However, the economy could lose its vitality with the decrease in population of those in their 30s and 40s who are the most active spenders and producers. Thankfully for Korea, the decrease in working age population is not expected to lead straight to an economic crisis. It is because the extent to which growth has been sustained by real estate bubbles or national debut is not as large compared to the countries mentioned above. However, if the working age population keeps on declining, the nation's consumer market and industries will change.
According to studies on future household consumption and spending for the next ten years, estimates suggest that basic necessities such as food and housing as well as items related to health will rise sharply due to the increase in the elderly population. As the population of those over the age of 65 will increase even more in 10 years, pharmaceuticals and healthcare industries will see a 30% increase in demand while supply disruptions are expected in sectors that require younger workers. By industry, healthcare, medicine, pharmaceuticals, IT & communications, as well as software development were shown to have a higher share of younger workers. The medicine, healthcare, pharmaceuticals, IT & communications industries were expected to see an increase in labor demand especially for young workers in the future so they are highly likely to experience a labor shortage.
According to statistics, the youth unemployment rate for Korea last year was 9.8%. The figure has been growing steadily since 2012. If the nation continues to have a low birthrate, in 10 years the population of those in their 20s will decrease by 20% or by 1.4 million. Industries that mostly hire young workers will face a labor shortage unlike today. Japan, which has long seen their working age population decline, has many IT and communication firms that require young employees but cannot hire them. So, what could be a solution to this working age population decline which is quickly becoming a threat to the Korean economy?
Labor shortage is expected to become a major limitation to Korea's economic growth in the next 10 years and the relative shortage of young workers is even more worrisome. This means that labor shortage can intensify for industries that are seeing a rapid increase in demand due to aging such as healthcare, or high-tech manufacturing industries that have a higher percentage of younger workers. To prepare for this, we must increase the quality of our youth work force, and urgently consider increasing the number of high-quality foreign workers coming into Korea.
However, the best solution would be to solve the low birthrate problem. But, this problem still remains unresolved despite spending 100 trillion won to tackle the issue. As such, we need a viable solution that can be planned and carried out with speed in order to turn off the warning signals of a population crisis.