A Solution to Low Birth Rates Found in *The Wealth of Nations*

“Poverty Dampens the Desire to Marry and Makes Child-Rearing Burdensome

The Key Is Raising Incomes Through Sustained Growth

Create Jobs Through Regulatory and Labor Reform

Increase Housing Supply with Pro-Market Housing Policy”

The low birthrate problem is serious. It is serious enough that a New York Times Op-Ed pointed out that it “could lead to a population decline even more severe than the Black Death in 14th-century Europe.” The warning by David Coleman, a professor at the University of Oxford in the United Kingdom, that “Korea will be the first country on earth to disappear” is truly shocking.

Historically, many countries have experienced low birthrates. One of them is the United Kingdom. From 1750 to 1800, Britain suffered a severe population decline, with the figure obtained by subtracting the death rate from the birthrate standing at around 0.7 to 0.8. Perhaps for that reason, Adam Smith’s The Wealth of Nations, published in 1776, contains discussion of the low birthrate issue.

“Poverty undoubtedly discourages marriage. (omitted) Even if poverty does not prevent childbirth, it is highly unfavorable to raising children.” “If compensation for labor is sufficient, workers can provide better living conditions for their children and, as a result, raise more children, naturally leading to higher birthrates.” “What must be recognized here is that for compensation for labor to become sufficient, labor demand must increase. If demand for labor continues to rise, compensation for labor (wages) will also increase, encouraging workers to marry and have children.” Adam Smith saw the cause of low fertility in the heavy burden of raising children, and believed the problem would be resolved if rising labor demand increased workers’ incomes.

But before this, Adam Smith says the following: “Demand for those who live on wages naturally increases as the wealth of a nation increases, and unless that wealth increases, demand for labor cannot increase either. What raises workers’ wages is not the actual size of national wealth, but its continuous increase.” In short, Adam Smith emphasized that the cause of low birthrates lies in sluggish economic growth and insufficient national income, and that the way to solve it is through continuous economic growth that raises people’s incomes. As Britain’s economy grew, the figure mentioned earlier rose to 1.2 after 1800.

The main causes of our current low birthrate problem also appear to be young people’s insufficient income and the burden of child-rearing costs. This is borne out by the results of a survey of 2,000 men and women aged 25 to 39 nationwide, included in a research report published late last year by the Bank of Korea’s Economic Research Institute. The most common responses were: “I want to get married, but circumstances do not allow it (employment, financial stability, housing problems, etc.),” and “because child-rearing costs are burdensome.” In the end, this shows that solving the low birthrate problem requires improving young people’s circumstances and reducing the burden of child-rearing costs.

To find a solution, we must first identify why young people’s circumstances have worsened and why they have come to worry about child-rearing costs. The fundamental reason lies in the government’s mistaken policies. Over the past 20 years, the economy has failed to grow and quality jobs have not been created because of countless regulations choking off business activity (to borrow Adam Smith’s phrase, demand for labor did not increase). On top of that, excessive pro-union policies have reduced employment opportunities for young new entrants, preventing them from earning sufficient income. And misguided real estate policies have sent apartment prices soaring, causing housing costs to rise to an unbearable level.

Therefore, to solve the low birthrate problem, above all, quality jobs and youth employment must increase so that young people can earn sufficient income and achieve stability in their lives. To make that happen, the many regulations imposed on businesses must be abolished or eased, and excessive pro-union policies must be reformed to make the labor market more flexible so that the economy can continue to grow. In addition, housing supply must be expanded through market-friendly real estate policies so that housing costs can be substantially reduced. Unless government policy changes in this innovative way, it will be difficult to fundamentally resolve the low birthrate problem no matter how much budget the government pours into childbirth and child-rearing subsidies.

Young people are our future. We must improve living conditions so that they can feel this is a society worth living in.

We must build a country where young people are full of hope, can study and work without anxiety, and can naturally marry and have children. The year 2024, Gapjin, is the Year of the Dragon, symbolizing a new beginning and growth. I hope it will become the first year in which both the ruling and opposition parties join forces to build such a country.

Jaewook Ahn, Professor Emeritus, Department of Economics, Kyung Hee University; Chairman, Center for Free Enterprise (CFE)

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Original title: ‘국부론’에서 찾아본 저출생 해법

Author: Jae-uk Ahn

Date: 2024-01-15

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=26382