Can womenomics solve demographic decline?

By Troy Stangarone

The world's population is aging. The population of those over the age of 60 is growing faster globally than any other age group.

This is especially true in much of the developed world where countries like Germany, Italy, and Japan were among the first to become super-aged societies with more than 20 percent of their populations over the age of 65. South Korea, however, will experience the same transition in a much shorter timeframe than most countries.

For European countries such as Germany and Italy, population aging was gradual as they moved from an aging society with 7 percent of the population over the age of 65, to a super-aged society over the course of a little less than 80 years for both countries.

In the case of Japan, the transition was a relatively brisk 36 years. For South Korea, it will likely only take 26 years to move from an aging society to a super-aged society.

South Korea's shift from a relatively young society to a super-aged society is the result of one very positive trend, but also one that is concerning for the future.

South Koreans are living longer than ever. Since 1970, 20 years has been added to the average life span. The trend is continuing.

According to a study in the British medical journal Lancet, a South Korean woman born in 2030 will have a 57 percent chance of living past the age of 90. This would give them the longest expected life span in the world. South Korean men can expect to be among the third-longest living group of men in the world.

The cause for concern is South Korea's declining birthrate. In the early 1980s the total fertility rate fell below the replacement level and has remained there. Last year the birthrate fell below one for the first time.

These two trends taken together have broad significance for South Korea's future. As South Korea's population ages, its workforce will shrink and South Korea's economic growth potential will decline to less than 2 percent over the next two decades.

The changing demographics will also affect other parts of South Korean society. South Korea currently has the highest level of old age poverty in the OECD. As the percentage of South Koreans over the age of 65 rises to over 30 percent of the population in 2040, there will be increasing strain on South Korea's pension system.

Healthcare expenditures will rise as well. A separate study by Lancet estimates that by 2040 South Korea will need to spend an additional 3 percent of GDP to cover healthcare costs and total healthcare expenditures will rise to 10.1 percent of GDP.

The shrinking population of those under the age of 65 will also have implications for South Korea's national security as fewer young males are available for military service.

The Moon Jae-in administration is planning to reduce the military to 500,000 personnel, but the declining number of young males means that over the next two decades further cuts may be needed.

While no one policy will address all of the challenges South Korea will face over the next two decades, integrating more women into the workforce will play a significant role in helping South Korea maintain the economic growth it will need to manage growing health and pension costs, while investing in the types of technologies that will help the military deal with the declining pool of young males that will be eligible for military service.

According to a recent study by the International Monetary Fund (IMF), if female participation in the labor force continues to grow at its average over the last decade to 2035South Korea will face declining production as the decline in South Korean females will outpace the increase in participation in the workforce.

However, South Korea could add 7 percent to its GDP, in spite of its declining workforce, if female labor participation is able to close the gap with male labor participation by 2035. If the rate of female labor participation were only to continue increasing at the rate of other advanced economies over the same period, South Korea's GDP would grow by 4 percent.

These are not insignificant numbers. A 7 percent increase in GDP is only slightly less than South Korea currently spends on healthcare, according to World Bank data.

There is no one solution to address the consequences of South Korea's changing demographics. The current and future governments will need to consider changes to the retirement age, creating incentives to increase automation in the workplace, and reforms to improve productivity in the services sector.

These will all be important steps in dealing with changes that will come over the next two decades, but increasing the participation of women in the workforce will play an important role in South Korea's ability to manage the challenges of an aging society.

Troy Stangarone (ts@keia.org) is the senior director of congressional affairs and trade at the Korea Economic Institute.

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