This country's aging problem could be a harbinger for the U.S.

(Bloomberg Markets) –They’re called the Sampo Generation: South Koreans in their 20s and 30s who’ve given up (po) three (sam) of life’s conventional rites of passage—dating, marrying, and having children. They’ve made these choices because of economic constraints and in the process have worsened Korea’s demographic imbalances. Last year, when the country registered more deaths than births for the first time in recent history, then-Vice Finance Minister Kim Yong-beom pronounced the milestone a “death cross.”

The typical age of a new mother in South Korea is 32, according to the National Statistical Office. The number of births per woman sank to a record low of 0.84 last year, the lowest rate in the world; in Seoul the rate is 0.64. The United Nations estimates that by 2050, Korea’s share of elderly people will become the largest of any country.

This demographic squeeze has slowed one of the world’s most advanced economies. While Korea’s gross domestic product growth last year, -1%, was less bad than many countries’ thanks to the nation’s effective containment of the ­coronavirus, its average over the past 10 years—2.5%—was well down from the average of more than 8% from 1980 to 2000, when its workforce was younger.

Korea’s predicament is extreme but not unique. Globally, 1 in 6 people will be over age 65 by 2050, compared with 1 in 11 last year, according to projections by the UN’s Department of Economic and Social Affairs.

Aging is more acute in the developed world—1 in 4 people in Canada, Europe, and the U.S. may be 65 or over by then, while 1 in 6 could be that old in Latin America and the Caribbean. The share of people 65 or older in southern Asia and northern Africa may also double to 1 in 8 and 1 in 9, respectively.

“The problem of declining population is no longer a future challenge; it is a current reality in many economies,” says Sonal Varma, chief economist for India and Asia (except Japan) at Nomura Holdings Inc. in Singapore. “While efforts are being made to boost the fertility rate, countries also need to simultaneously prepare to deal with the challenges posed by falling birthrates.”

South Korea has been trying to do something about its falling fertility rate for decades. Like many other governments around the world, Seoul has been providing tens of billions of dollars in incentives, ranging from free nurseries to subsidized pay during child-care leave. It even arranged group blind dates for public servants in the hope it would lead to more marriages. None of it has really worked.

Now the government has decided to change tack, shifting the policy focus away from reversing population decline and toward finding a way to live with it. A new two-track approach still seeks to encourage more births to ensure a future workforce that’s sizable enough to sustain its pension system, but there’s increased attention on encouraging women and seniors to stay in the labor force or open new businesses.

The government has proposed easing strict immigration regulations to bring in more foreign workers, including engineers needed to keep companies such as Samsung Electronics Co. feeding the world’s voracious demand for computer chips. In January a pan-government task force on population policy identified 13 key issues to tackle this year—from addressing the graying manufacturing workforce to helping rural cities where populations are in decline.

“We’ve tried to raise the fertility rate in various ways, but it hasn’t been easy, and we now have no choice but to accept what’s coming and deal with it,” says Na Yoon-jung, a Finance Ministry official overseeing population policy. “Aging is a global issue, but it’s happening at a tremendous pace in our country. The shrinking working population weakens our foundation for growth and increases burdens on young people.”

It’s not just the size of the labor force that’s at stake. Across Korea, institutions once functioned on the assumption that the nation’s population would grow steadily. Now they’re left grappling with demographic change. Almost half of the country’s cities are at risk of drastic depopulation within 30 years, according to the Korea Employment Information Service, while some universities are already facing a stark drop-off in enrollments.

In a country locked in an armed standoff with North Korea, the population shifts are especially pertinent for the military. According to the World Bank, North Korea’s fertility rate per woman was 1.9 in 2019, while South Korea’s was 0.9. South Korea has one of the world’s largest armies, but the number of conscripts has been declining for almost a decade. These days perhaps the biggest threat to South Korea’s 640,000-strong force stands not across the border but within its own boundaries: Troop numbers are expected to shrink by a third in less than two decades as the population ages.

Korea is throwing its technological might at the problem, developing unmanned vehicles that can transport ammunition or wounded soldiers and even wage combat on their own, along with robots programmed to detect mines and underground tunnels. At sea, tests with unmanned mine-­hunting vessels are under way.

Hanwha Defense, an arms manufacturer, figures that robots could cut by as much as 60% the number of personnel required for dangerous operations. “It makes more sense to have a robot killed than a human,” says Jeon Young-jin, chief robot developer at Hanwha. “The life of each individual soldier is now more precious than ever.”

The steps Korea takes to tackle its demographic dilemma will be closely watched by nations on track to encounter their own death crosses. According to the UN, deaths could outnumber births in Russia as early as this year. China’s population is expected to peak in less than 10 years, while in India, the most populous nation after China, that could happen by 2060.

Japan’s well-known aging problem seems modest compared with Korea’s. Japan had already become one of the richest economies in the world by the time its demographic clock began ticking, and its major-economy status and vast domestic savings pool have allowed the government to amass huge debt in a bid to keep living standards high even as economic growth slowed. South Korea’s challenges and how it copes with them may prove more relevant precedents than Japan’s for countries such as China and Thailand, which also risk getting old before they’re rich.

Even if it makes progress in getting more women, elderly people, and foreign workers into the workforce, South Korea may still fall short of filling the gaping holes in productivity, labor input, and the tax base, all caused by a shrinking and graying population. Capital Economics Ltd., a London-based consulting firm, says that just to maintain the size of the current labor force, Korea would need to see the number of immigrants increase as a share of the working-age population from the current 3% to 30% by 2045—a near-impossible task that would require an overhaul of immigration laws, corporate behavior, and social norms.

That’s why technology, not an influx of immigrants, may be the answer. Self-driving vehicles that rely on high-speed wireless networks, logic chips used to operate artificial intelligence, and automated farms utilizing internet-of-things devices are all part of the government’s technological agenda.

Regularly ranked as one of the most innovative countries in the world, Korea is better placed than most to make these ideas a reality. “With a shrinking population, productivity gains are crucial in order to maintain economic growth rates,” says Sung Won Sohn, an economist at Loyola Marymount University in Los Angeles. “This is an opportunity for Korea to offset the negative effects of the declining population.”

That will come too late for many Koreans. On the cusp of retirement at 59, Kim Jin-hyung says he’s willing to accept lower pay if he can find a new job after his decades-long career at a local bank wraps up. As it stands, he’s shelving his dreams of traveling around the world and playing golf because he needs to pay for rising property taxes and doesn’t want any financial difficulties to delay his daughters getting married someday.

“I had always thought I was well-prepared for retirement,” Kim says. “Now, unless you’re a public servant hired by the government, life is too uncertain—both for people my age and my kids’ age.”

Sam Kim covers economics from Seoul.— With assistance from Jiyeun Lee

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