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The National Assembly Futures Institute publishes reports that predict and analyze the changes in the future environment based on a comprehensive perspective, and derive mid- to long-term national development strategies in consideration of the preferences of the citizens
(21-07) Comparison and analysis of demographic structure and social expenditure in OECD countries

Date : 2021-12-31 item : Research Report 20-07 P.I : Lee Chae-jeong

(21-07) Comparison and analysis of demographic structure and social expenditure in OECD countries

This report examined the changes in the demographic structure of each Organisation for Economic Co-operation and Development (OECD) country and reviewed the factors associated with changes in fertility rates. After the Korean War in 1953, Korea showed a high fertility rate of 6 births per woman in 1960, but has steadily declined since the early 1960s. In addition, during the global oil crisis in the 1970s, the fertility rate fell due to the global economic downturn in the early 1980s, and declined again following the 1997 economic crisis. Since then, the total fertility rate has continued to drop due to a sharp decline in the proportion of married women.

Through analyzing the characteristics of each OECD country, its social expenditure structure, and its resource allocation efficiency, it was found that Korea has a lower tax revenue relative to its economic level (GDP per capita), and Japan's elderly population ratio exceeds 25%. In addition, Korea has the highest ratio of working-age people in the population when compared with countries with similar economic levels. Further, its fertility rate is the lowest among all OECD countries, approaching the 1.0 births per woman range.

As a result of examining the relationship between the characteristics of OECD countries and the amount of social expenditures, it was found that there is a strong and positive correlation between total tax revenue and social expenditure in Korea. Korea is a low-burden, low-welfare country; the ratio of the elderly population is equivalent to what is identified in middle- and low-income countries, and the size of the country’s social expenditure is lower than that of other countries with the same ratio of older adults. Meanwhile, Korea is a country with a high ratio of working-age people and has low social expenditures, which differs from the average country, and may reflect the fact that the Baby Boomers have not yet retired. Despite the low fertility rate in Korea, the scale of social expenditures is low and falls beyond the confidence interval.

In addition, in order to understand the social expenditure efficiency, the Stochastic frontier analysis (SFA) method was used to analyze the social expenditure efficiency in OECD member countries. The analysis identified that while income inequality or subjective life satisfaction did not vary greatly between countries, Korea showed a median level across both variables; further, income and job efficiency were low, and housing conditions and work–life balance were high in light of efficiency versus budget inputs.

For 15 years, the Korean government has been promoting a step-by-step policy in response to its low birth rates and aging society. However, it has undergone large and small changes each year, and basic plans have been developed based on changes in the country’s regime and policies. With respect to the required budget, some differences were identified, but the budget across policy fields tended to increase each year, and the growth rate also increased.

When establishing its second basic plan, the government attempted to achieve the following: 1) expand the policy target to dual-income households and Baby Boomers to enhance satisfaction with and effectiveness of the policy; 2) establish and promote multilateral and comprehensive measures; and 3) promote pan-social policy cooperation. The third plan differs from the previous two plans in that it attempts to provide a comprehensive and structural approach by creating a paradigm shift in how to respond to the low birthrate and aging society. The third plan underwent a restructuring process, in which the number of tasks was reduced and its effectiveness was increased. Tasks not related to policy goals were excluded from the basic plan to maintain the budget and focus on the most effective tasks; existing tasks were classified and various levels of autonomy were granted based on importance. In order to efficiently reorganize the basic plan that aims to address the low birth rates and aging society in Korea, which is the top basic plan in Korean social policy, it is necessary to clarify the priorities of individual policies and seek specific measures to enhance the efficiency of these major policies.