Effective low-fertility policies require clear goals

A CEO of a small-to-medium-sized enterprise (SME) I recently met strongly complained about the birth subsidy policy adopted by several large companies. He argued that such news could make workers in SMEs feel deprived and potentially hopeless, leading to higher quit rates. This complaint came to mind when I first encountered the government's "policy measures to reverse the current low fertility trend" on June 19. I wondered if the staff at that SME now feel more confident about having children with these new measures in place.

The government's measures, explained in a whopping 51-page document the size of a small handbook, seemed to have improved this time by focusing on securing enough time for child-rearing and ensuring compatibility between work and family life. Key policy items include adopting short-term child-rearing leave and providing financial support to SMEs that hire replacements for staff on child-rearing leave (surprisingly, there had been no such support previously). The government's commitment is also evident in the real estate sector, aiming to alleviate housing burdens for families with children even by circumventing the rule that limits special housing lottery chances for households with babies to once a lifetime.

However, there is widespread criticism among young people, the primary target of these policy measures. They argue that the measures are overly broad, encompassing all sorts of birth rate policies without focus, and that allowing loans to buy a house does not effectively address low fertility. There are two main reasons for this failure.

First and foremost, policymakers lacked attention to detail in creating measures that potential parents truly want. For instance, the policy allowing the application for child-rearing leave together with maternity leave is intended to relieve pressure on workers. However, the responsibility for applying still falls on the workers. It would be more practical to make child-rearing leave start immediately when maternity leave ends, requiring only those who do not wish to take it to apply for a suspension. Some companies have already implemented such policies.

Secondly, incorporating all existing birth rate policies makes it seem like even the government is confused about who to target. The Korea Economic Research Institute noted in its report titled "Analysis of Birth Rate Changes by Income Quintile and Policy Implications" that the number of households with babies in the low-income bracket, led by those aged 15 to 49, decreased by 51% in 2019 compared to 2010. In contrast, the number decreased by only 45.3% and 24.2% for middle-income and high-income households, respectively, during the same period.

This analysis implies that the lower the household income, the less likely they are to have children. The low-income bracket likely consists of workers at firms other than large companies and of non-regular rather than regular and permanent workers. These workers can hardly dream of working flexible hours or taking child-rearing leave, rendering such measures ineffective. Raising the maximum annual income requirement to 250 million Korean won for special loan eligibility for couples with a newborn also seems unrealistic for many Korean citizens.

The government assessed the previous administration's birth rate policies as inadequately customized, lacking consensus-building, and ineffective. The current administration should present measures with clearer policy targets and more concrete aims to avoid repeating the same mistakes. If fertility increases among SMEs in provincial industrial complexes, we might only see a faint sign of reversing the current low birth trend. There is still a long way to go.