South Korean Study: Housing & Education Costs Drown Out Economic Growth's Impact on Fertility Rates
South Korea's fertility rate plummeted to a world-record low of 0.78 births per woman in 2022. A Korean Government Journal, The International Journal of Advanced Culture Technology, recently published a study (The Impact of Housing Prices and Private Education Costs on Fertility Rates by Clara Jungwon Choi, Jaehee Lee, and Jinbaek Park) that points to skyrocketing housing prices and private education costs as major culprits. Interestingly, it claims that economic growth, or at least regional economic growth, is associated with higher birth rates. Still, that effect is drowned out by other factors, such as education and housing.
By the numbers:
South Korea's fertility rate dropped from 6.0 in 1960 to below replacement level (2.1) by 1983
It hit 1.31 in 2001 and has continued falling despite government efforts
The current 0.78 rate is far below other developed countries
Why it matters: Meager birth rates threaten Korea's economic future and social systems. Understanding the causes is crucial for developing effective policies to address what has become a national emergency.
The details: The study uses data from 16 metropolitan cities over 13 years (2009-2021) and analyzes it using a dynamic panel data model, specifically a System GMM (Generalized Method of Moments) approach, to analyze the impact of various factors on fertility rates while accounting for time series correlation and potential endogeneity issues.
Historical context:
Korea implemented birth control policies from 1960 to 1995 as part of economic development plans.
The government continued these policies even after reaching below-replacement fertility in 1983
Since 2005, the government has attempted to boost fertility rates through various initiatives, including the Framework Act on Low Birth Rate in an Aging Society.
Despite these efforts, the rate has declined, highlighting the challenge of reversing demographic trends.
Key findings:
Housing: Increases in apartment prices significantly lowered fertility rates the following year, but most young families aren't home buyers, so what about rents? It turns out that Jeonse (lump-sum rental) prices had an even stronger negative effect on fertility. The stronger impact of rent suggests that potential parents, who are more likely to be renters, are particularly affected by housing market changes.
Education: Rising private education costs reduced birth rates across all levels. Interestingly, high school tuition had the strongest negative impact on fertility. In contrast, elementary and middle school costs did show adverse effects but were not statistically significant as high school costs.
Korea's hyper-competitive education culture makes parents invest heavily in private tutoring, especially in high school.
The significant impact of high school education costs reflects the intense competition for university admission in Korea.
This raises the perceived cost of having children financially and in terms of time investment.
The study suggests this reflects East Asian parents' desire to raise "successful" children, leading to increased investment per child and fewer children overall.
Private education costs in Korea have risen 5.8 times from 1990 to 2013, outpacing the 4.5-fold increase in average household income.
Economics: Regional economic growth does boost fertility rates; it's just been drowned out by other factors. Higher unemployment rates lowered fertility.
67% of household debt in Korea is related to housing loans, exacerbating the impact of housing prices on family planning decisions
The study suggests stabilizing housing and rental costs isn't just crucial for long-term economic growth and addressing the fertility crisis.
Bottomline
Addressing Korea's housing affordability and education cost crises might be the key to reversing its dramatic fertility decline. However, the study's value add is that it helps provide evidence against the conventional view that growth alone causes declining birth rates and reinforces that fertility rate decline is complex, with many different factors that can and will drown out others.