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Korea's Plunging Birth Rate: Causes and Policy Suggestions

Korea's Plunging Birth Rate: Causes and Policy Suggestions

CHOI Sook-Hee

May 2, 2007

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Abstract

Korea's 2005 total fertility rate of 1.08 was the lowest in the world. In the long run, such a low rate leads to declining number of workers and thus weakens the economy's growth potential.

A number of economic and social changes have contributed to the declining fertility rate. Most recently, the 1997 Asian financial crisis has left an indelible imprint on employment. As companies underwent painful restructuring, they jettisoned their tradition of lifetime employment. Job seekers now face a job market that stresses 2-3-year contract positions rather than more secure, fulltime employment. The repercussions are seen in young adults delaying marriage and childbirth because of the fragile labor atmosphere.

A regression analysis was done to identify the reason(s) for Korea's low birthrate since 1990. Four factors were applied: concern over future income; costs of child rearing; a shift in individual values; and sociological considerations (e.g., gender inequality, which forces Korean women to stay home). Our analysis indicates that the sociological factor has been the primary reason, though the income and child factors were more prominent after the financial crisis.

Government policies need to focus on remedying problems posed by gender inequality such as encouraging companies to adopt flexible working hours. For the longer term, however, the income factor should be taken into account. That means people should be allowed to work beyond their traditional retirement age of 55, giving them more income-generating opportunities to make them feel more secure without children's support.

No matter how hard the government tries to address the children factor through various policy measures, it is impossible to raise the fertility rate up to the replacement rate of 2.1. Therefore, it is advisable that the government should instead find ways to minimize social problems originating from low birthrate.

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