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Insight: South Korea stares down demographic dilemma

Oct 3, 2011, 9:58 a.m.
People walk on the street in central Seoul in this December 19, 2010 file photo. REUTERS/Lee Jae-Won/Files

By Jonathan Hopfner

SEOUL (Reuters) - Kim, a doctoral student in her 30s, personifies many of the qualities that make South Korea such an economic force -- relative youth, education and ambition.

The trouble -- for corporations and policymakers -- is that she is equally typical by not wanting to have children.

"I just want to live happily with my husband without having to worry about kids or making sacrifices for them," said Kim, asking to be identified only by her surname.

South Korea is not alone in facing a plummeting birth rate and rapidly aging population -- neighboring Japan and China, as well as much of Europe, face similar challenges.

But it is getting there at astonishing speed. Over 40 years, it has gone from having one of the highest birth rates in the Organization for Economic Co-operation and Development (OECD) of advanced economies to the lowest, while life expectancy has surged.

OLDER, FASTER

By 2018, 14 percent of its population will be over 65, making it officially an "aged society." That is six years sooner than Japan and more than a century before France, according to the Samsung Economic Research Institute (SERI).

And by 2050 almost 40 percent of South Koreans will be senior citizens, likely the highest proportion in the world.

It has stark implications for South Korea's healthy state finances.

A report released by the Ministry of Strategy and Finance in July warned the national debt would jump to 138 percent of gross domestic product (GDP) in 2050 as pension and health insurance expenditures skyrocket, from around 34 percent last year.

The consequences for the country's manufacturing-intensive, export-led growth model may be even deeper.

Lee Sung-sik, a senior labor researcher at business lobby the Korea Chamber of Commerce and Industry, described the situation as "severe," with firms facing a double threat of insufficient labor supply and spiraling costs as they dole out regular raises and higher salaries to older employees.

Corporate Korea looks very vulnerable to shortages of new recruits and an aging workforce. Productivity remains relatively low, meaning output is sustained almost entirely by massive inputs of labor, including some of the world's longest working hours.

With working hours likely to fall and older workers' inexperience with new technologies pressuring productivity further, a shrinking labor force will slash South Korea's potential annual growth rate from over 4 percent to 1.7 percent in the 2030s, according to the Korea Development Institute.

Most economists estimate serious labor shortages won't start to appear until after 2019, when an exodus of baby-boomers leads to a declining working-age population, but many companies are already bracing for demographic fallout.

"(Labor shortages are) a problem that may affect the company's role in the industry in the future," warned a spokesman for Daewoo Shipbuilding & Marine Engineering, the world's third-biggest shipbuilder around 40 percent of whose production workers are already in their 50s.

"DIFFICULT TRADITIONS"

South Korea's "difficult traditions" have only exacerbated the decline in fertility rates that typically accompanies rising affluence and education, said Lee Sam-sik, head of the aging and low fertility research division at the Korea Institute for Health and Social Affairs (KIHASA), a government-backed think-tank that advises the administration on population policies.

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