[Gwanga in] "Effects of low birthrate policies seen in numbers for the first time"... 'Praise' poured on Bank of Korea report

Academic Community Surprised by Mid- to Long-Term Comprehensive Measures and Research

"There have been numerous reports on low birthrate countermeasures, but this is the first time the policy effects have been presented with concrete numbers. To move the budget authorities, quantitative evidence is necessary, which is why the Bank of Korea's report is welcome." (Hong Seok-cheol, Standing Member of the Presidential Committee on Low Birthrate and Aging Society)

The Bank of Korea's economic outlook report released on the 3rd, titled 'Extreme Population Structure of Ultra-Low Birthrate and Ultra-Aged Society: Causes, Impacts, and Countermeasures,' a mid- to long-term in-depth study, has received widespread acclaim from various sectors. The first reaction was surprise that the Bank of Korea, which had not paid much attention to the low birthrate area until now, conducted in-depth research over more than a year. The second reaction is that unlike previous studies conducted partially or by topic related to low birthrate, this report comprehensively shows the effect of each countermeasure on increasing the fertility rate with specific numbers, providing significant implications for policy authorities.

◆The first report presenting policy effects in numbers= As of last year, South Korea's total fertility rate was 0.78. According to the report, if the employment rate of young people in Korea (ages 15-39, 58%) rises to the OECD average level of 66.6% among 34 countries, the fertility rate would increase by 0.12 to 0.90. Also, if the actual usage period of parental leave in Korea, which is only 10.3 weeks, is extended to the OECD average of 61.4 weeks, the fertility rate would increase by 0.1, rebounding to the 1.0 range. Arithmetically, among various policies, aligning Korea's urban population concentration and out-of-wedlock birth rate to OECD average levels would cause the fertility rate to surge by 0.41 and 0.16 respectively, showing a large effect; however, since these policies are realistically difficult to change in the short term, the Bank of Korea analyzed that increasing youth employment rates and extending men's actual usage period of parental leave would be more effective at this point.

The Bank of Korea's study is also academically significant as it is the first domestic confirmation of the impact of competitive pressure on desired number of children based on a survey of 2,000 people. In this survey, the average desired number of children for the group feeling high competitive pressure was 0.73, which is 0.14 less than the 0.87 average for the group feeling low competitive pressure.

Commissioner Hong said, "Korea's parental leave pay replacement rate is only 44.6%, and the monthly cap on parental leave pay is 1.5 million won, which does not even guarantee half of previous income, making it difficult for men to choose parental leave." He added, "Sweden mandates 90 days of paternal parental leave and has a pay replacement rate close to 70%." Countries like Sweden and the Netherlands, which have high parental leave usage rates, have regulations such as automatic commencement of parental leave, allowing workers to take parental leave simply by applying.

Professor Han Jong-seok of Ajou University’s Department of Economics pointed out, "Korea has a remarkably low rate of men taking parental leave, partly due to cultural differences, but ultimately it indicates problems throughout the labor market." He emphasized, "There is an urgent need to improve the social atmosphere where taking parental leave is feared to harm careers, reform promotion and performance evaluation systems, and actively expand flexible work arrangements to increase caregiving participation." In Japan, to raise the rate of men taking parental leave, since April this year, companies with more than 1,000 employees are required to disclose the usage rate of paternal parental leave. Companies that violate this are subject to administrative guidance from the Ministry of Health, Labour and Welfare. Currently, there is also consideration to expand the disclosure obligation to companies with more than 300 employees.

◆Ministry of Health and Welfare holds emergency meeting after reading Bank of Korea report= The Bank of Korea report also resonated with the government. On the 6th, the Ministry of Health and Welfare convened an emergency expert advisory meeting together with the Low Birthrate and Aging Society Committee, which is in charge of low birthrate issues. Hwang In-do, head of the Macroeconomic Research Division at the Bank of Korea Economic Research Institute and author of the report, was invited to this meeting. Recently, the New York Times (NYT) diagnosed Korea's ultra-low birthrate as more severe than the Black Death outbreak in 14th-century Europe in a column titled 'Is Korea Disappearing?' and even forecasted that North Korea, with a total fertility rate of 1.8, might invade South Korea, putting policy authorities under urgent pressure. Commissioner Hong explained, "The foreign media's perspective is not an impossible scenario," adding, "Israel's total fertility rate was 3 in 2021, the highest among OECD countries, but due to geopolitical reasons surrounded by Arab countries with a high threat of war, population is directly linked to security and national survival." At this meeting, Lee Ki-il, First Vice Minister of Health and Welfare, emphasized, "It is time to establish a nationwide consultative body to overcome the population crisis, similar to the Central Disaster and Safety Countermeasures Headquarters for COVID-19." The government plans to promote the alternatives raised at this expert meeting as government policies in consultation with related ministries.

Furthermore, the Low Birthrate Committee will sign a memorandum of understanding (MOU) with the Bank of Korea on the 19th and actively cooperate on research related to low birthrate and aging. This MOU was successfully proposed by the Low Birthrate Committee to the Bank of Korea. In particular, the Ministry of Health and Welfare plans to newly allocate 1 billion won in the next year's budget for a 'Population Policy Evaluation Center' through private consignment projects, and the Low Birthrate Committee plans to entrust this budget to external research institutions to carry out population policy evaluation tasks. The Low Birthrate Committee said, "We were impressed by the recent Bank of Korea research on low birthrate and thought it would be good if the Bank of Korea could take on some evaluation functions." They added, "The Bank of Korea's report analyzed policy effects through OECD country comparisons, and if cooperation between the two institutions is strengthened after the MOU and follow-up research proceeds, it will greatly help discover effective policies suited to Korea's situation."

A Bank of Korea Economic Research Institute official said, "This low birthrate report is the second mid- to long-term in-depth planned research following the report on elderly economic activity participation rates announced in May," adding, "The Governor has encouraged and suggested investing time to fundamentally find causes and solutions to the problems Korea faces, and long-term research is actively being conducted."

◆Bank of Korea raising its voice... The Lee Chang-yong effect= In the industry, there is an internal and external assessment that the recent increase in the Bank of Korea's voice on government policies and the release of in-depth reports is due to the effect of Governor Lee Chang-yong, who took office in April last year. It is interpreted that the Governor, who ordered a 'changed Bank of Korea' immediately after taking office, is personally leading the change, and the effect is gradually becoming visible. Having previously served as the IMF Asia-Pacific Director, Governor Lee is actively benchmarking the strengths of the IMF and revitalizing the organization. In his inaugural speech last year, he emphasized, "We must strive to strengthen the Bank of Korea's stature not only as the main actor of monetary and credit policy but also as the 'best domestic think tank' that knows our economy best." Until now, the Bank of Korea had been criticized for taking a neutral tone and being passive about government policies, but now it is showing a gradually changed approach by actively sharing high-quality internal reports externally. The 'Interregional Population Movement and Regional Economy Report' published by the Bank of Korea on the 3rd of last month became a hot topic for strongly criticizing the concentration in the metropolitan area amid the heated controversy over 'Gimpo's incorporation into Seoul.'

Governor Lee's convictions are also evident in his usual remarks. After the Monetary Policy Committee meeting in November, at a press conference, when asked about concerns over the Bank of Korea's independence due to the Governor attending the weekly Big 4 meetings of institution heads, he confidently responded, "Why don't people think that the Bank of Korea meets the government and influences the government? Why don't they ask why the government's independence is disappearing?" He explained that the Bank of Korea's reports and ideas, including household debt measures, positively influence the government, and since the Bank of Korea also receives information from the government, policy coordination synergy is expected, so there is no concern about independence being compromised.

Additionally, the Bank of Korea has strengthened communication with the outside by posting on its blog and improved readability by changing the previously used bullet-point style sentences in reports to narrative form, which is a noticeable change. Earlier, in May, the Bank of Korea overhauled its economic outlook report and named it the 'Indigo Book,' which has received positive evaluations for helping understand economic trends by covering in-depth topics.