The Looming Demographic Crisis: Unpacking the Economic Ramifications of Population Decline in South Korea & Spain

Since the beginning of recorded history, the global population has, for the most part, followed a steady upward trend of population growth proportional to technological development. This was most significantly highlighted through the Industrial Revolution, which saw the global population skyrocket from an estimated  770,000 million in 1760, to 1.1 billion by its end in 1840. Yet, as nations continue to develop, this pattern no longer seems to be the case as a new global dilemma emerges. Population decline. 

 

Population decline, which is primarily characterized by declining birth rates and an aging society, is expected to pose substantial economic challenges over the coming century. This is especially true in developed countries such as the U.S, whose social security system and public finances are already predicted to be at risk of defaulting under the weight of a smaller,  younger generation. According to the U.S. Census Bureau, by 2034, the number of Americans over the age of 65 will outnumber children under the age of 18, resulting in fewer people contributing to social security programs while more depend on it. It is estimated  by then that over 1 trillion will be spent annually on Medicaid/Medicare to cover the cost of hospice and other late-life healthcare services. This will not only result in higher tax rates and increased government debt to support the elderly but also in a significant  reduction in the amount of funds being allocated to education, public infrastructure, and other large-scale projects that could help rejuvenate the economy.

 

Some countries however, have already begun to feel the impacts of this problem. South Korea and Spain, who have been at the forefront of population decline for the past four decades, have seen critical sectors of their economies begin to shrink. In South Korea, the manufacturing  domestic supply index, which measures the domestic supply produced by Korean manufacturers, has fallen by 2.4 percent, marking the sharpest fall since 2010 when data first began being collected. Meanwhile, in Spain, the current unemployment rate of 11.8 percent is double that of the rest of the European Union, which sits at 5.9, and is projected to continue increasing as their demographics change. As such, both countries provide an excellent staging ground from which to evaluate these new population trends and their repercussions on the global economy.

 

Starting with South Korea, considered by many to be one of the most developed countries on earth, and the 13th largest economy globally, South Korea has been suffering through economic stagnation and population decline since the 2010’s. However, unlike most countries, which have managed to hover around a fertility  rate of 2.3, which represents the number of children per woman of child bearing age, South Korea's fertility  rate has drastically declined since the end of the Korean War, going from an average of 6 children per woman to now 0.8. This has eventually culminated in the country slipping from its tenth place title, which it held on and off from 2018 to 2020, down to thirteenth in the economic leaderboard ranked by GDP, having been passed up by Italy, Brazil, and Australia since. 

 

The Korea Employment Information Service (KEIS), estimates  that South Korea must add nearly a million  more workers to its labor force by 2032 in order to maintain an economic growth of 2.0%, with its automotive, manufacturing , and electronics/telecommunication industries  currently taking the biggest toll. Its electronics /telecommunications industry specifically  has fallen 10.3% in terms of domestic supply, the most out of any other industry. With continued population decline throughout the rest of the century,  Korea's population is estimated to drop from its current number of 52.1 million down to 46.9 million in 2060, further hampering its economy and even bringing into question its continued growth and development.

 

Another thing to note is that these numbers only represent South Korea’s economic decline and the loss of Korean jobs but don't take into consideration the loss of any subsequent American, Japanese, Chinese, and Vietnamese jobs which are directly connected to the Korean economy and are some of its biggest trade partners. This highlights that the economic stagnation of one of the biggest global economies is not limited to just their borders but plays a significant impact in global trade and runs the risk of harming other markets.

 

On the other side of Eurasia, Spain faces similar  problems. Deaths in Spain have surpassed births since 2015 even when factoring increasing migration into the country. Although, this can slightly be attributed  to the Spanish Civil War and its direct after effects on Spanish society, which also saw more deaths than births from 1936-1939. Spain today, post-franco, still suffers from a low birth rate of 1.19 which is a ways away from the UN’s Population Divisions’ estimated replacement figure of 2.1 children per woman of child bearing age.

 

To try to combat this problem however, the Spanish Government has taken a different approach.

Unlike South Korea who is mainly trying to combat underpopulation through financial means, mostly in the form of stipends targeted at families; Spain is attempting to reform its immigration  policies to welcome highly skilled laborers into the country. Today, around 18.31 percent of Spain’s current population is from an immigrant background, meaning that they either immigrated  to the country themselves or are descended from an immigrant. Despite the fact that this has helped lessen the economic and political ramifications of population decline, Spain will still have to figure out a way to tackle the issue as population growth continues to descend.

 

By 2060 it is expected that Spain’s population will fall from 47.3 million down to 45.1 million, which, although a less significant fall than South Korea’s, is still a drop of around 4.65 percent of its current population figures. This drop in population will mostly be felt in Spain's agriculture and construction industries which currently drive the country’s economy and have managed to place it fifthteened overall worldwide in terms of GDP. 

 

Already, the European Commision and the Banco de Espana report that more than forty-two percent of all Spanish companies perceive that labor shortages are affecting their productivity. Pedro Sanchez, Spain's Prime Minister claims that "low-skilled migrants are helping the economy by working invisible jobs [such as construction and agriculture], stopping crucial sectors of the economy from collapsing"  Although some of the current job losses can be attributed to the unreliable job markets post-covid pandemic, the war in Ukraine, and a lack of foreign investment, in the future, these changes are expected to continue and become more prevalent as the world shifts to more efficient and productive manufacturing  practices and Spain’s skilled labor shortage grows as the baby boomer generation retires from the workforce. 

 

However not all is as grim as it appears.

 

Looking ahead, these demographic trends provide the perfect moment for South Korea and Spain to transform their economic landscapes. As both countries work to adapt and innovate solutions to their respective dilemmas, new opportunities for technological advancements, continued labor force diversification, and the development of new supportive governmental policies that can encourage both sustainable population and economic growth arise.

 

Ultimately, addressing the looming demographic crisis in both nations requires a combination of economic, social, and political reforms. By recognizing the scale of the challenge early on and adopting progressive strategies, it is possible for these nations, and many others soon to be facing similar situations, to navigate through population decline and pave the way for a more resilient and sustainable economic future.