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South Korea: A rising tiger’s struggle's

By Christina Render
web posted November 4, 2019

I remember the stories my grandparents told me of their childhood. They lived in a village around where Pyeongtaek was during the aftermath of the Korean War. They used traditional Korean farming tools such as the hand plow to harvest food to get by as poverty ran rampant throughout the country. They also relied upon aid from the US to make sure they had enough food to eat. When I first arrived in South Korea, I could hardly believe such stories at first. I saw sprawling cities crammed full of shops, signs, restaurants, and people. Technology was widespread throughout households and made the entire country connected with each other and the world through the internet. Furthermore, South Korea was one of the rising Asian tigers who was home to prominent companies such as Samsung. Yet, what my grandparents told me was true. South Korea was once a developing country, an agrarian economy. And now, it’s become Asia’s fourth-largest economy.

South Korea has come far, yes. But, it has, even more, hurdles to overcome. Today, South Korea is plagued with issues involving labor with unemployment and with its own aging population and low fertility rates. Since President Moon Jae-In has assumed office in the Republic of Korea, the minimum wage has increased along with the regulations on employment benefits. Overtime hours are now limited to a set amount in order to provide relief for the worker and boost productivity. Such policies have been used before by past South Korean president and we are now seeing the ramifications of such policies.

First, there is that of the minimum wage. Minimum wage policies with governments are like Goldilocks and the three bears. Governments have to choose just the right rate of minimum wage similar to how Goldilocks had to find the perfect porridge and bed for herself. If they choose the wrong minimum wage, it can have wreak havoc on their economy, specifically the unemployment rate of the economy. In this case, South Korea chose the wrong porridge and the wrong bed. Over a period of 2 years, South Korea under President Moon Jae-in has hiked its minimum wage by 29 percent. Earlier this year, South Korea implemented a minimum wage increase of 10.9% effective from this year’s January. The ramifications of this were disastrous in terms of employment. Coinciding with the minimum wage increase in January, jobs in South Korea’s manufacturing sector were the hardest hit with the loss of 170,000 jobs. This makes sense as minimum wage increases the cost for each worker the firm hires. This then decreases the incentive for firms to hire more or as many workers. Other sectors such as the retail sector and construction sector were hit hard as well with the retail sector losing 67,000 jobs and the construction sector losing 19,000 jobs. The havoc minimum wage increases have wrecked on employment and jobs in South Korea severely affected the economic growth of the nation as employment and economic growth have a clear correlation. The more people that are unemployed, the less the economy grows, after all. The recent stagnation of South Korea’s economic growth at a sluggish 2% shows this.

Second, there is that of South Korea’s population problem. The major crisis that South Korea faces right now is one not from North Korea’s nuclear threats, the rising rate of unemployment, or the current trade feud ongoing with Japan. No, what is plaguing the Republic of Korea is simply destiny in demographics. The rapidly aging population of South Korea in conjunction with low fertility rates leaves South Korea with a dim destiny, at the moment. By 2067, reports have estimated that South Korea’s population will drop to 39.3 million with elderly people 65 years or older accounting for 46.5 percent of the population. South Korea’s population simply cannot produce enough children to balance out the aging population. In 2016, the average South Korean woman was projected to give birth to only 1.17 children in her lifetime. This was the lowest among OECD countries. The fertility rate needs to keep the population constant is 2.1. South Korea more than falls short of that. Now, why exactly is the fertility rate so low in South Korea? It’s not truly a matter of biology but rather of economics. In developed countries, people have children normally when they feel that their economic situation is stable. Unemployment and a lack of jobs tend to make the economic situations for South Koreans unstable. Due to layoffs in industrial sectors such as the manufacturing sector, there is high youth unemployment in the nation. This means that people have less money and reduces their confidence and incentive in starting families. South Korean women, for example, are reluctant to marry because the economic burden of taking care of a family would be too much, unless they too worked. In addition, the labor market is so fiercely competitive with its inflexibility in South Korea that women cannot split their time and energy between work and family. Therefore, there is a lack of people willing to have families and children due to unemployment. In addition, the economic costs of raising a family with children in South Korea are high. Private education, which generally considered a necessity in Korea, is expensive and increases the costs per child on families. Thus, South Koreans don’t usually want to have more than one child due to education expenses. The South Korean government has been trying for years to solve this problem of its population’s low fertility rate with government spending on subsidies and benefits for state-support to families and education. However, the cost of education remains high in Korea regardless in part due to the nation’s high and competitive standards of education including the necessity of private tutoring and acceptance into schools of ‘high standing’. Since 2006, the South Korean government has spent 1265 billion dollars in the effort to boost the birth rate in South Korea. However, the birth rate remains low, too low in fact to have a long-term sustainable population.

Now, what would be the best way to handle this predicament? The answer is simple: government deregulation. The problem of unemployment and demographics is linked to South Korea’s inflexible labor market. South Korea’s labor market needs to be more flexible with less stifling regulations on employment benefits and work hours. Instead of dictating how many hours everyone should work in a week, let the workers themselves decide. The minimum wage increases have made South Korea’s labor market increasingly inflexible and unable to adapt to the changes in market and demand for labor as well. Rolling back work hour policies such as limiting workweek to only 52 hours will allow for employment along with more wealth in people’s pockets. People work overtime after all to get more money. Stopping them from working more only causes them to lose out on potential opportunities to save and gain more money. Over all, firms would be more motivated to hire workers if the cost of hiring a single worker decreased with a rollback of government-mandated benefits such as insurance, minimum wage, and maximum overtime hours policies. In making more jobs available through government deregulation in the labor market, South Koreans would find themselves in a more economically stable situation with jobs and thus be more open to having children. One of the problems causing the low birth rate is unemployment. If unemployment is reduced through government deregulation, the economic situation would stabilize and people would feel more comfortable and stable in having children. Furthermore, women in South Korea would feel less pressured in solely focusing on their careers and finding jobs if the economic burden of taking care of family lessens with their partners having stable jobs. This would help solve the crisis of South Korea’s low fertility rate and aging population.

One instinctual reaction many governments have to economic problems is to throw money at it. In what ways it may be useful is up for debate. However, in the case of South Korea, simply throwing money at the problem of unemployment and low fertility rates will not help anything. In fact, it will only further increase the tax burden on the average South Korean taxpaying citizen and the corporations as well with corporate tax. Government intervention is something the South Korean economy doesn’t need. Instead, less government appears to be the best way to solve ongoing issues of unemployment and low fertility rates. Long-term economic growth generally requires three things: In order for South Korea to ensure its long-term economic growth, it must solve the crisis of its aging population and problem with unemployment. ESR

This is Christina Render’s first contribution to Enter Stage Right © 2019




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