Korea faces income losses within half a century without more labor migration

Description

South Korea faces a social and economic crisis driven by a rapidly aging population. Without increased labor migration, Korea is likely to experience major losses, including income and growth declines because of its demographic challenges.

A generation ago, Korea tightly restricted immigration, but since the 2000s, the country has opened its doors to immigration. Today, Korea hosts almost a million employed noncitizen residents—just 3 percent of its workforce—both temporary and permanent, under visas focused on employment. Korea has only begun to tap the economic potential of foreign workers in comparison to other economies and will need to invest in more migration policies to offset its aging population.

This chart assesses the effect of zero migration on Korea's economy, assuming no additional immigration after 2024. In this scenario, aging is expected to cause a cumulative decline in Korea's income per citizen within 18 years. Other countries also have immigration challenges. For example, in the absence of immigrant workers, Spain and Italy would reach the same point three to six years later, and China and Germany would hit a similar point nearly 13 to 16 years later. By 2072, Korea is estimated to experience a 21 percent income loss per citizen without immigration.

A solution for Korea would be to follow the example of Malaysia or Australia and gradually increase the percentage of noncitizen workers to 15 percent of the workforce over the next four decades, which could reverse most of the economic growth reduction caused by aging.

Korea's experience is a harbinger of many other countries in the developing world and in many advanced countries. Korea's choices in navigating these waters will be watched by policymakers around the world.

This PIIE Chart is adapted from Michael A. Clemens's Working Paper, Migration or stagnation: Aging and economic growth in Korea today, the world tomorrow.

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