Korea is 20 years away from a 'demographic time bomb,' IMF says

Damir Sagolj/Reuters

Economists have coined an unsettling term to describe a phenomenon in countries with low fertility rates and poor economic growth: demographic time bomb.

Japan's situation is the most extreme example. Its population has been steadily declining for the last decade, with 2016 marking the first time in 117 years that the total number of births fell below one million. Meanwhile, the number of people over 65 continued to grow.

According to a new report from the International Monetary Fund, Korea could be next.

The current economic and social landscape in Korea looks a lot like Japan did in the early 1990s, the report explains. If left unchecked, the country could see its own demographic time bomb emerge sometime around 2035.

The IMF report, entitled "Korea's Challenges Ahead — Lessons from Japan's Experience," finds that Japan's working-age population shrank as people continued to age into retirement. In 1995, about 63% of people were considered to be of working age (between 18 and 65). By 2015 it had declined to 56%. Korea's current working-age population is 66.5%, but analysts expect that number to match Japan's 2015 rate within the next couple of decades.

As Japan's workforce dwindled, the country saw its projected rate of economic growth fall from an average of 4% in the late 1980s to less than 1% in the 2000s. Korea, meanwhile, saw its own rate fall from 8% in 1991 to 2.9% in 2015.

Demographic time bombs are hard to reverse because there isn't a single factor that causes them. In the case of both Korea and Japan, the problem is caused by a combination of work schedules that leave little time for dating, longer life expectancy, a decreasing number of young people to shoulder the costs of caring for seniors, and a traditional culture that doesn't favor women in the workplace.

"An aging population is likely to have major implications on the labor force, savings, investment, growth, and the current account and fiscal balances," the report states.

Some factors that contributed to Japan's demographic time bomb, such as the loyalty people felt toward their jobs after World War II, are particular to that country. But both Japan and Korea have populations that are aging incredibly fast — Korea could be the oldest country by 2045, with an average age of 50, one estimate suggests. Japanese people over 65 make up a larger share of the total population than any other age group: 26.7%.

Fertility rates in both countries are also well below the point required to keep population steady, which is known as the replacement fertility rate — often cited as 2.2 children per woman. Japan's fertility rate is 1.41. Korea's is 1.25.

Demographic time bombs are vicious circles, which means one-off solutions like national sex nights and speed-dating events aren't sustainable. Economists have suggested that the best approach in both countries could be to create policies that get more women into the labor force and abandon hard gender roles, since it means more people could start families and go to work.

Korea has yet to see the full effects of its demographic trend, but unless it takes some lessons from its eastern neighbor, history could very well repeat itself.

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