South Korea is experiencing one of the most consequential crises that will change the economic trajectory for upcoming decades. As South Korea’s death count surpassed the birth count for the first time in 2020, the country has entered a fragile economic state. With the decades-long, steep decrease in birth rate, Korea will lose nearly 20% of the labor force by 2040.

South Korea, over the last decades, experienced one of the most rapid economic growths from the poorest country in the world after the Korean War to one of the most advanced economies in the world. Yet, this rapid change had consequences of its own: over the period of the economic boom, increased prosperity caused a “sharp decline in South Korean birth rates from 6.1 children per woman in 1960 to around 1.6 by 1990,” according to a recent report.

Then how does the change in demographics impact Korea’s economy? The decline in the birth rate is causing a significant shift in Korea's demographic makeup, which, in turn, has a ripple effect on its economy. The aging population denotes a smaller labor force, which leads to lower economic output and productivity. This decline in the labor force will also create challenges for the social security system. This system relies on contributions from the younger working population to support the older generation. Moreover, with a smaller labor force, companies will struggle to fill vacancies, which could lead to a rise in wages and higher production costs. Such ripple effects contribute to decreased cash mobility throughout the nation as well as lower profits for South Korean businesses. Not to mention, a decrease in cash inflow may influence domestic companies to become extremely hesitant to invest in advancing technologies, ultimately resulting in the stagnation and loss of worldwide competitiveness of the state's businesses.

To illustrate the ripple effects of low fertility rates, consider the case of Japan in the 1980s. During their economic boom in 1989, six out of ten companies with the largest market capitalizations were Japanese companies. However, as Japan passed the economic stagnation of “lost decades” and the individuals stopped making investments, Japan’s companies quickly lost their competitiveness. Currently, in 2023, not a single Japanese company is listed on the top 10 list. What is interesting is that one of the key causes of Japan’s lost decades is attributed to the demographic change of an aging population. From the case of Japan, a lesson can be learned that, if complex economic factors are intertwined, the low fertility rate could lead to instability of the country and even destruction.

The business is also significantly impacted by changes in demography. The most noticeable effect is a shortage of young people in the labor force, which results from the disparity in young people’s inflow across the industries. The video/broadcasting and communications industries only saw a 0.1 increase in mean age, whereas the mining and repair industries saw 5.7 and 4.9 increases in mean age, respectively, according to a report from the national statistics office that compared the mean ages of various industries from 2009 to 2017. In addition, enterprises with small and medium-sized businesses experience difficulties due to a lack of young people to fill open positions. A startling 63.4% of the firms questioned by the Korea Economic Research Institute, which included 576 small and medium-sized enterprises, said they hadn't employed as many workers as they had anticipated. As the population ages, it is predicted that more businesses will experience increasing labor shortages.

So how should the company adapt to such a demographic shift? The simplest solution is to address the low birth rate issue. The recent story of a prominent company's chairman visiting an employee's house who had given birth to four twins and bowing to the infants has been a huge issue in South Korea. As seen in this case, businesses should pay considerable attention to the issue of the birth rate. They should set up internal welfare programs like parental leave, birthing incentives, or a company-run childcare facility. Making the firm an environment where young workers desire to work is crucial if you want to hire more young people. As the population continues to age, "age-friendly" services and products are another approach a firm should consider for its senior clients. It makes the right sense for businesses to provide products or services that can meet the demands of seniors as more and more of their consumers in the future will be elderly. This process has been referred to as "capturing the gray market" by the business publication "Economist," and the Center for the Study of Aging Society at Korea University published a book titled "2022 Senior Trend" that suggests concepts like senior-focused Internet and financial services, home-care services, and aging tech as promising business items in the future.

Yet, domestic actions taken by private businesses in South Korea are insufficient to fully address the challenges they will face in the future. For South Korea’s long-term growth, the country must fundamentally alter its demographic diversity–and at first, Korea’s remedy may seem simple. From a purely economic perspective, the government can accommodate more immigrants, as they would help to increase the size of the labor force, and thus the production levels. Accepting immigrants in Korea, however, introduces challenges in multiple degrees: not only does the policy require unprecedented policy and legal reforms, but such a proposal, as previously suggested by all economists in Korea for more than decades, also presents a unique challenge against Koreans' antipathy towards multiculturalism. In the 2020 Korean Identity Survey by the East Asia Institute, Koreans’ support for a multicultural nation declined noticeably over the decade (60 percent in 2010 to 44 percent in 2020), suggesting predictable dissent even if the Korean government accepted more immigrants. Furthermore, in an article published in Bloomberg, “Korea would need to see the number of immigrants increase as a share of the working-age population from the current 3% to 30% by 2045” just to maintain the size of the current labor force, requiring “a near-impossible task” to reform immigration laws, social norms, and more.

If South Korea wants to become global, it needs to become one from the inside out. In a predominantly homogeneous society, Korea’s first reaction to foreign cultures may be hostile. Regardless, South Korea’s competitiveness in the ever-changing global economy will depend on its ability to reform itself to multiculturalism. In the face of one of the most difficult times of the decade, South Korea may need another Miracle of the Han River-- a “miraculously” rapid economic development following the Korean War. However, it is the young generation of Korea that can make the most change in society at large, to lessen the burden that may confront us in the future.