Sunday, April 27, 2008

Rapid Ageing in Korea

From - Facing the Future: Korea's Family, Pension and Health Policy Challenges
OECD Working paper.

Extraordinarily rapid ageing of the Korean population

The increase in the maternal age in first childbirth has contributed to the sharp decline in the fertility rate in Korea. The birth rate was 6 children per women in 1960, about half that in 1975, and is now at about 1.2 children per women; among the lowest levels recorded in OECD countries (Chart 1.5). Socio-economic changes, including industrialisation, urbanisation, changes in family values, gender roles, attitudes towards paid employment and pursuing careers have all contributed to changes in family formation and the decline in the birth-rate.

In addition to changes in fertility behaviour, there have been sharp reductions in infant mortality rates, from 45 infants per 1000 live births in 1970 to 5.3 in 2002; the infant mortality rate is now below the OECD average of 5.7 infants per 1000 live births (OECD, 2005c). There has also been a dramatic increase in life expectancy in Korea

Compared to other OECD countries, except perhaps Turkey and to a lesser extent Mexico, the gains in life expectancy in Korea have been spectacular over the last 45 years: for women from 53.7 years on average in 1960 to 80.8 in 2003; and from 51.1 to 73.9 for men over the same period. Compared to most other OECD countries, the proportion of the foreigners residing in Korea is low: only 0.9% of the population is foreign born (OECD, 2006b). In the absence of important migration flows, the sharply reduced birth rates and the huge gains in life expectancy at birth will lead to an extraordinarily rapid ageing of the Korean population.

By 2050, the number of people not yet 30 years of age relative to the working age population will have fallen to 29% from 46% in 2000. This will have a profound effect on, for example, the demand for education services, which is likely to lead to dramatic changes in the number and structure of schools and universities. At the same time, the number of senior citizens relative to the working age population will increase from just below 10% in 2000 to almost 70% in 2050 (Chart 1.7); and only Italy, Japan and Spain will have similarly 'old' populations in 2050. These dynamics will impose a considerable burden on future working age populations and challenge the innovative capacity of Korean policy-makers.

Socio-economic factors contributing to low fertility rates

The traditional Confucian based family-support-system has long been an important cornerstone of Korean society. In this concept the 'extended family' (often living together in one household) plays a key role in providing support, either through direct provision of care, or otherwise through the provision of transfers. However, the nature of Korean society has started to change. The prevalence of extended households is diminishing: the incidence of three-generation households fell from 22.1% in 1970 to 9.9% in 2000 (KNSO, 2005). There number of households with children is rapidly declining in rural areas while there growing number of married couples without children, and the number of households. These factors suggest that there is an increasing proportion of elder couples who are living on their own (especially in rural areas), while in urban areas there are also likely to be more younger couples without children.

The trend to smaller households coincides with a decline in birth rates more generally. The decline in birth rates mainly involves increased childlessness among women and a decline in larger families. Table 2.2 shows that the number of first-born children in 2004 is about two-thirds the number of first-born children in 1981 which point to a decline in the number of women who have children. Once Korean women have become mothers it is very likely that they will have a second child, but not more. The number of larger families has dwindled; the proportion of babies who are borne into families with two children already present is only 20% of what it was 25 years ago.

Koreans are getting married at a later age. The median age at first marriage for women increased from 24.4 years in 1990 to 27.5 in 2004 (OECD, 2007b). In theory, later marriage could merely lead to a postponement of fertility (and a temporary dip in birth rates), but, in Korea it seems to have led to a more permanent decline in family-size. The change in the fertility rate is also related to an increase in the acceptance and the number of people who are not marrying (KNSO, 2005). At every age, unmarried people have much lower fertility than married people, but this is particularly true for Korea, where births out-of-wedlock hardly ever occur. In contrast to many European countries, and Nordic countries in particular, cohabitation generally does not extend to parents with children. It is difficult to quantify the relative importance of these different factors on fertility trends, but much more than in other OECD countries, changes in fertility trends in Korea are related to changes in marriage behaviour.

The change in fertility behaviour is also related to changing attitudes within Korean society. The male-breadwinner
model involves a clear allocation of responsibilities, with men providing family income, and women providing care
at home. Female employment was incompatible with caring for children, and as long as most women accepted this
gender division of responsibilities, fertility rates remained stable and high. However, changing female aspirations,
as, for example, reflected in increased educational attainment and increased labour force participation, diminished
the relevance of the male-breadwinner model and contributed to the desired decline in fertility rates. Indeed, unlike
most OECD countries, birth-rates in Korea were above desired fertility levels in 1981. By 2000 that had changed.

Education and housing costs, and the perception thereof, are often referred to as important factors which affect
fertility behaviour. Good housing is hard to get in Korea - about a quarter of households live in accommodation
that does not meet the minimum standard and housing costs are substantial and increasing rapidly in recent years
(OECD, 2005a). The high cost of housing poses the greatest difficulty to first time buyers, and although this group
is relatively small, many of those are either young people who wish to start a family or young families with children.
Housing constraints thus co-determine the timing of leaving the parental home and, in turn, marriage and first birth.
The high costs of childrearing in general, and high education costs in particular are perceived as a major problem
by many parents in Korea. Spending on primary and secondary schools is largely public in Korea; public spending
amounted to 3.5% of GDP in 2003 while private spending amounted to 0.9% (OECD, 2005d). However, in order
for their children to gain entrance to the most prestigious universities, many parents organise for their children,
if they can in any way afford it, to attend very expensive education, such as tutoring or the after-school learning
institutes, and this can cost up to about USD 25,000 annually per annum. The cost of university education is largely
borne by parents: in 2003, spending on university education amounted to 2.6% of GDP of which approximately
80% concerned private spending, compared to average spending on tertiary education across the OECD of about
1.1% of GDP, of which close to 40% was privately financed.

Increasing the incidence of (non-regular) part-time employment opportunities (see below) and changing the duration
and generosity of income support during parental leave, are likely to have little effect on fertility behaviour in Korea.
On the other hand, greater investment in childcare and pre-school services, and introducing public transfers to families
which relieve the cost of raising children are among the factors that potentially could have a large impact on the The estimation technique underlying the projected impact on fertility behaviour as in Chart 2.3 does assume, however,
that Korea were to develop spending on its family benefits up to the level of the third-ranked country in
the OECD area. In reality, this is unlikely to happen in the near or distant future, as spending on family benefits
is relatively low in international comparison. In 2003, it amounted to about 0.12% of GDP; by contrast, this was
close to 4% of GDP in Denmark. The system of public family support is under construction in Korea, and includes:
support for family welfare services, community centres, orphans, childcare services and pre-school education. Since
2001, Korea has a system of income support during maternity and parental leave. In 2008, an in-work benefit will
be introduced that will support low-income families, and there is debate on extending childcare support and/or introducing
an (income-tested) child allowance (see below and OECD, 2007c, forthcoming).

Childcare and pre-school education is just one of the areas where limited public support has contributed to access
issues. Compared to other countries participation in formal care arrangements by under 3s is not high in Korea.
Participation in preschool services by 3, 4 and 5 years old is higher at almost 70% (Chart 2.5). In the case of
childcare and pre-school participation parental fees do not appear to be excessive on average (Immervoll and Barber,
2005). Rather it seems there is a lack of access to good quality services for very young children, and while traditional
attitudes on maternal caring roles may curtail demand for formal care services the latter are nevertheless to fall
well short of demand (see, for example, Kim and Kim, 2004). The constraints to childcare and pre-school capacity
are likely to contribute to mothers often providing personal care for very young children on a full-time basis.
Among OECD countries, policy makers in Japan (OECD, 2003b) and Korea are arguably most explicit in their
aims to foster an environment conducive to parents having as many children as they want. However, compared to
the prominent role of fertility concerns in the Korean social policy debate, budgetary allocations to support such
initiatives have been limited.
Moreover, rather than introducing a single measure, it is increasingly realised in Korea that a comprehensive policy
package is needed to reverse existing fertility trends. Steps undertaken in this process include the introduction of
the "The Low Fertility and Ageing Society Policy Act" in September 2005 and the signing of a 'convention' or
'master plan' towards higher fertility rates by different social partners in July 2006 (Box 2.1).

Box 2.1: The 'Master Plan' for increasing fertility in Korea
The 'master plan' for increasing fertility rates reflects increased awareness of fertility concerns and involves a convention
signed by social partners including the government, employers associations, trade unions, and civic groups
(Government of Korea, 2006). The "master plan" encompasses a wide array of different measures that increase family
resources and facilitate the reconciliation of work and family life:
• Increase the coverage of income-tested childcare support to serve about 80% of all children aged 0-5 in 2009.
At present only families on social assistance or with earnings below 70% (there are exceptions) of average monthly
urban worker household earnings (about KRW 3,350,000 or about USD 3,500 for a 4-person household) are eligible
for fee support. By 2009 this will cover all families with children whose earnings are below 130% of average
urban worker household earnings.
• To help parents combine their family and work commitments when children get older, the planned provision of
out-of-school-hours care in all primary schools by 2010; in 2006, about 20% of primary schools provided such
a service.
• To increase investment in public childcare facilities to cover 30% of children under that age in centre-based care
(in 2005 this proportion was 11%), the government also subsidises private care centres which provide services
to 0-2 olds. To enhance the quality of services of such services, an accreditation system will be introduced with
quality assessment being carried out every three years, from 2008 onwards. Flexible child care services will be
expanded so that more night-care services and hour-based care services will be available in the near future.
• The tax system will be made more favourable for larger families. Also, a child-birth credit will be introduced
to the National Pension Scheme (NPS), worth one year of pension contributions in case of a second child and
worth 18 months contribution from the third child onwards, up to a maximum of 50 months. The credit is given
to one adult in couple families, but equally divided among spouses if they so wish. The introduction for a child
allowance is also being considered, but subject to a review of possible financing mechanisms
• Provision of maternity leave is being expanded. From 2006, the unemployment insurance scheme pays maternity
leave benefits up to a maximum of KRW 4,050,000 (about USD 4,240) for 90 days, (also to female workers
in small and medium-sized enterprises and female workers who have a miscarriage). From 2008, 3 days' paternity
leave will be introduced. Parental leave benefits will become more generous: for children born from 2008 onwards,
parents will be entitled to 1 years leave to care for children up to 3 years old (at present all leave has to be
taken prior to the first birthday), and payment will increase from KRW 400,000 per month (about USD 420)
to KRW 500,000 in 2007. It is also intended to introduce a flexible working hours' system for working mothers
with care responsibilities for young children in 2008. The government will also introduce a bonus-payment for
employers who hire mothers with young children who wish to return to paid employment.
Other measures in the "master plan" include an accreditation system for family-friendly enterprises, increase awareness
of the value of family-friendly policies and gender equitable practices, improve child-safety measures, establish
systematic monitoring (check-ups) of pregnant women, mothers, babies and infants within the public health system.
In 2007, the eligibility criteria in the existing system of income-tested financial support towards IVF-treatment for
couples who are not able to conceive will be loosened so as to increase coverage.

Across OECD-countries the relationship between female employment and fertility appears to have changed over
the last 35 years or so (OECD, 2005f). In the 1970s, there was a clear negative correlation between female employment
and fertility rates, but, in 2005, OECD countries with higher rates of female employment also had relatively
high fertility rates (Chart 2.6). Clearly, the degree of incompatibility between paid work and providing care has
diminished, but there aresubstantial cross-country differences: combining childrearing and being in employment is
most incompatible in the Mediterranean countries and Japan and Korea and least incompatible in Nordic countries,
New Zealand and the US (for example, Engelhardt, et al, 2001 and Kögel, 2001).

Female labour market aspirations and behaviour have clearly changed, and this change in behaviour has led to
policy reform. Policy tries to reduce barriers to employment and increasing "choice for parents" in making their
work and care decisions is the overriding policy objective across the OECD, even though the underlying emphasis on wider policy issues varies. For example, while fertility concerns are a key concern in the Korean social policy
discussion, this issue hardly features in the British or Dutch debate. Similarly, while gender equity objectives feature
prominently in Swedish policy design, this is far less so in many other OECD countries, including Korea. The underlying
differences in emphases in policy objectives are important for the understanding of differences in policy design
(as well as outcomes) across the OECD area (Box 2.2).

Box 2.2: The OECD Babies and Bosses reviews of work and family reconciliation
The OECD Babies and Bosses series considered how policies can help balance work and care responsibilities, and
covered 13 countries in 4 volumes: Australia, Austria, Canada, Denmark, Finland, Japan, Ireland, the Netherlands,
New Zealand, Portugal, Sweden, Switzerland and the UK (OECD, 2002; 2003b 2004a and, 2005e). A synthesis report
including indicators on countries not reviewed is being prepared for release in 2007; the reviews have also led to
the establishment of an on-line OECD database on family outcomes and family policies (

The Babies and Bosses reviews favour systems which provide a continuum of support - support for full-time
personal care at home when the child is very young, leading on to a childcare place, pre-school, school and
out-of-school-hours care activities, as in Denmark, for example. Such support systems are expensive, but public
outlays could be reduced through targeting.

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