HyunJeong Hwang

Yoonyoung Yang

Jon Pareliussen

Axel Purwin

Over the past six decades, the fertility rate in Korea has plummeted, down to 0.7 by 2023 (Figure 5.1, Panel A). This is the world’s lowest, well below Japan (1.2), Germany (1.6), France (1.7) (Panel B), and far below the 2.1 replacement rate, the threshold for maintaining a stable population over the long term. A fertility rate of 0.7 means roughly that for every 200 people in the current parent generation there will be only 70 children and 20 grandchildren. The population already began to decline in 2021, leading to the conversion of kindergartens into nursing homes and of wedding halls into funeral parlors (JoongAng, 2024) and the sales of pet strollers exceeding those of baby strollers on a leading e-commerce platform for the first time in 2023 (The Korea Times, 2023). This anecdotal evidence foreshadows the profound changes to come as large cohorts of baby-boomers reach retirement and working-age cohorts are continuously shrinking in size (Figure 5.2, Panel A). The population is expected to halve over the next six decades with the elderly (aged 65 or older) then accounting for around 58% of the total population (Panel B). During this time, the old-age dependency ratio will surge from 28% today to 155%. Even if the fertility rate were to bounce back to 1.85, the dependency ratio would surge to 117%, still turning the country from one of the youngest to the oldest in the OECD (Panel C). The combination of a shrinking and ageing population poses a formidable challenge to sustaining social insurance systems and maintaining living standards. Labour shortages will intensify as retirees make up an increasing share of the population, and the fiscal cost of health, long-term care and pensions is set to more than double to 17.4% of GDP by 2060. Responding to population decline is one of the top priorities on the government’s policy agenda. Indeed, in mid-June, it announced new policy initiatives to address the plummeting fertility rate, including a plan to establish a new ministry (tentatively named the Ministry of Population Strategy Planning), declaring it a national emergency.

The fertility rate of 0.7 and its consequences are so extreme that it forces a fundamental re-think of how society allocates the responsibility to bear the cost of raising children. Due to Korea’s rapid development it is only a few decades since children provided old-age security directly to their parents, often pooled in extended family structures. The tangible cost of bringing up children still falls largely on parents and it has increased over time, notably as income growth and women’s higher levels of education and expanded career opportunities have increased the alternative cost of having children. The benefit of having children and grandchildren to provide the goods and services parents need when they reach retirement is on the other hand shared across the entire parent generation. A couple raising two children will put in considerable investments, but this investment will on average need to secure the retirement of roughly six individuals from the parent generation.

Against this background, this chapter centers on addressing Korea's demographic challenges. The chapter begins by discussing strategies to support young women and men to have the number of children they desire by addressing underlying factors that drive low fertility rates and removing the barriers contributing to this trend. However, positive effects of higher fertility on the labour force only come after two or three decades when young people enter the labour market. Even tripling fertility to the 2.1 replacement rate by 2040 would not prevent the workforce from declining in the short and medium term. Korea must therefore prepare for and adapt to the inevitable challenges of an ageing and contracting population. Thus, the latter part of this chapter will explore policies to counteract the adverse consequences of low fertility, notably by lengthening working lives. Korea should also reconsider its immigration policies, as there are very few immigrants in Korea, while immigration could play a significant role in boosting labour supply and altering the dynamics of population growth. With these reforms and a rise in the total fertility rate to 1.1, employment would increase to 29 million by 2070, about 12 million higher than in the no-reform baseline (Figure 5.3, Panel A), and the employment rate would be 75%, around 18 percentage points higher than the no-reform baseline (Panel B).

Only 2.5% of births happen outside of marriage between women and men in Korea (Figure 5.4, Panel A). Norms towards alternative family types are changing, but for now Korea’s declining fertility rate remains directly associated with the plummeting marriage rate, like in Japan (OECD, 2024a). From 1990 to 2022, the total marriage rate plummeted from 9.3 persons per 1 000 marrying in any given year to 3.7 (Panel B). The marriage rate for those aged 20-34 plummeted from 27 per 1 000 to 10.7 over the same period (Panel B).

Those who do get married also have fewer children. Over the past two decades, the average number of children per married couple has decreased from around 1.5 to less than 1, while the ideal number of children married women desire has remained around the replacement rate of 2.1 (Figure 5.5, Panels A and B). This partly reflects a rapidly rising mean age of marriage, which has in turn increased the age when women have their first child to the highest in the OECD (Panel C). Foregone and delayed marriage have also led to a significant rise in childlessness. The share of women who have not experienced any live births by the age of 50 almost doubled from 7% in 2000 to 13% in 2020 (Panel D). Until the 2000s, most married couples had at least one child, but since the 2010s, many are choosing not to have children, indicating a notable shift in fertility behaviour (Choi and Ham, 2024). In 2022, 23.1% of 34-year-old married women born in 1988 were childless, nearly five times the 4.8% rate for those born in 1970 (Statistics Korea, 2023c).

The marriage and fertility trends are closely linked to a number of complex problems rooted in the rapid industrialisation that catapulted Korea into the ranks of developed economies in an exceptionally short period. First, the relentless pursuit of efficiency and export-led economic growth was on many accounts very successful, but social well-being has not improved commensurately. Gender norms have placed the responsibility of taking care of children on women while men are expected to work long hours and make a number of sacrifices to build their careers and provide for their families. Economic development and increased access to education gave women the opportunity to pursue increasingly rewarding careers (Figure 5.6), which many would need to sacrifice if they chose motherhood. Indeed, rigid working norms and long working hours continue to make it challenging to combine work and family, notwithstanding recent progress. Second, the stark divide between good jobs in the often export-oriented large firms and precarious jobs has contributed to the challenges young individuals face in establishing stable careers. Third, this labour market dualism and the ensuing wide inequalities in wages, social protection and job stability, have intensified competition from a young age to secure good grades and a foothold in top universities, often involving significant investments in private education. Fourth, the concentration of quality education and work opportunities in the Seoul Metropolitan area has drawn youth there while elevating housing costs, which now pose a significant financial barrier to family formation.

No silver bullet exists to solve these multifaceted challenges and change societal perceptions of child-rearing from burden to source of joy, calling for a comprehensive approach. A top priority is to enhance policies supporting work-family balance. International experience as well as empirical analyses suggest that these policies are key to reverse trends of declining fertility in high-income countries (Box 5.1). A government survey indicates that 43% of respondents cited policies supporting work-family balance (i.e., parental leave, flexible working arrangements, and childcare) as the most needed measures to boost fertility (PCASPP, 2023). Policies that mitigate the trade-offs between fertility and female employment will not only help boost fertility but also female employment ̶ a dual necessity in addressing Korea's current workforce decline and ageing issue. Beyond work-life balance policies, the government should also enhance policies that directly alleviate financial barriers associated with family formation or childbirth. These policies include improving the economic position of youth notably through addressing labour market dualism and alleviating high housing cost burdens, as well as reducing private education expenses for parents.

Family policies, including childcare, paid parental leave, and flexible working arrangements, can increase the compatibility of women’s careers and family and reduce the direct cost of having children as well as forgone earnings. Korea has introduced a number of policies to raise the low fertility rate and the employment rate of women. In particular, higher public investment in preschool childcare and paid parental leave from 2001 have pushed up the enrolment rate in childcare facilities over the past decades (Yang et al., 2024). However, notable gaps persist. Usage rates of paid parental leave are the third lowest in the OECD, after Ireland and Japan. Some gaps exist between the level of service parents need from childcare and what is actually given, and there is room to further increase quality to converge to high-performing OECD peers.

Research findings suggest that these gaps in family policies, working culture and gender norms are mutually reinforcing the difficulties of combining career and family in Korea (Choi and Ham, 2024; Seo and Kim, 2016; Yang et al., 2021). For instance, parents who take parental leave struggle to balance their work and childcare responsibilities after returning to work due to lack of quality childcare, while access to quality public childcare has only a limited positive impact on female employment when parental working hours are long and inflexible (Choi and Ham, 2024). While government spending on family support increased from 1.1% of GDP in 2013 to 1.5% of GDP in 2020, it still falls short of the 2.1% OECD average.

There remains ample room to enhance government spending aiming at addressing these gaps while refining the targeting to maximise overall impact. Since 2005, successive Korean governments have made efforts to boost the fertility rate through allocating “low fertility budgets”, which surged from KRW 2.1 trillion (0.3% of GDP) in 2006 to KRW 51.7 trillion in 2022 (2.4% of GDP). Despite this remarkable eight-fold increase as a percentage of GDP, the total fertility rate has continued to decline, indicating a potential misalignment between public spending and actual needs (Figure 5.7). The smallest portion of the budget was directed towards parental leave policies, despite survey results and research underscoring their importance in addressing the low fertility rate. Moreover, the share of the budget allocated to overall policies aimed at enhancing work-life balance has declined in recent years (NABO, 2023a). There is room to increase spending on family policies, for example by shifting parts of the generous subsidies handed out to SMEs (Chapter 3) or considering increased taxation or social security contributions to invest in future taxpayers, in light of the pressing need to boost fertility and Korea’s relatively small government. According to a government survey, 77% of respondents answered that there is a need to expand the low fertility budget (PCASPP, 2023).

Public expenditure to improve quality and quantity of early childhood education and care (ECEC) has a greater positive impact on fertility rates than child cash allowances by making career and family commitments more compatible (Greulich et al., 2016; Deopke et al., 2022, Yang et al., 2024). Korea’s spending on ECEC as a share of GDP has significantly increased from around 0.1% of GDP in 2000 to 0.9% in 2019, just above the 0.8% OECD average. Despite a decline in headcount enrollment and the number of childcare facilities reflecting decreasing fertility (Figure 5.8, Panel A), Korea has the largest share of children enrolled in childcare among OECD countries (Panel B). However, the current childcare system falls short of meeting the needs of working parents, with approximately 30% of mothers citing a lack of suitable childcare options as a reason for career interruption (MOHW, 2022). This reflects the low quality of private childcare, scarcity of public childcare, and short opening hours not in line with parents’ working hours.

Most childcare facilities are still private (Figure 5.9, Panel A). In 2012-13, the government abolished the income threshold for childcare subsidies paid to parents and started paying the tuition for all children, including in private childcare centres. This led to a surge in demand for childcare. In response, the government encouraged the private sector to supply childcare through subsidies and deregulation (KIHASA, 2013). The rapid expansion of private childcare facilities through easing criteria has raised concerns about a potential decline in quality. Indeed, private facilities exhibit the lowest parental satisfaction among all childcare facilities (Panel B). From June 2019, the Assessment and Accreditation system has been mandatory and applied to all day-care centres. However, few poor-quality childcare facilities are actually forced out of the market, due to a lack of enforcement measures (KICCE, 2019; KIHASA, 2013).

Monitoring and enforcement measures for private childcare centers should be improved. Korea has a split early childcare and education system where private childcare centres lie under the Ministry of Health and Welfare and private kindergartens under the Ministry of Education, and there is no nationally unified or integrated monitoring and enforcement system. Kindergartens are subject to stricter criteria than childcare, including the requirement for teachers to hold tertiary education degrees (Kim et al., 2019). According to a survey, more than 90% of parents are satisfied with private kindergardens (KICCE, 2018). The government is planning to unify the management bodies of childcare centres and kindergartens under the Ministry of Education, which is a positive step and should be implemented as planned. Adopting standardised quality assessment tools and an integrated monitoring system for early childhood education and care would help improve the quality of childcare facilities, as seen in many OECD countries such as Italy, Germany and Finland (OECD, 2016a). Higher entry barriers for kindergartens also extend to debt limits. Private childcare facilities are allowed to have debt up to 50% of total investments, whereas private kindergardens are required to have zero debt. According to a government survey, most childcare experts believe that the 50% debt ratio in childcare facilities is high, leading to lower quality of services, as it may force facilities to prioritise revenue generation for debt servicing, resulting in cost-cutting measures such as staffing, resources, and maintenance (MOHW, 2017). Regulation and governance of childcare and kindergartens should be unified, and standards for childcare raised to the level currently applicable to kindergartens.

This is important not only for the quality of overall early childhood and care facilities but also the quality of private long-term care institutions. Both childcare and elderly care facilities fall under the same category in the Building Act. This allows for a relatively simple process of facility conversion without the need for complex legal procedures. A number of childcare centers, facing difficulties due to low fertility rates, have thus been transformed into long-term care facilities. While the number of childcare centers decreased by more than 20% between 2018 and 2022, the number of nursing homes increased by over 25%. There is already an excess supply of poor quality private long-term care institutions (OECD, 2022a). The government should ensure that low-quality ECEC facilities are not simply converted to long-term care institutions without a quality upgrade.

The government should also continue to improve the accessibility of public childcare. Public childcare facilities have longer waiting lists for admission than private childcare facilities, especially in bigger cities (KICCE, 2018). Interregional differences in the supply of childcare centers and kindergartens are key factors explaining the limited success of the 2012-13 childcare subsidy expansion in terms of labour force participation among mothers (Min and Lee, 2020). Moreover, some empirical analyses suggest that greater availability of public childcare correlates with higher fertility rates (Lee, 2022; Min and Lee, 2020). Expanding public childcare in regions and localities with a current shortage of quality childcare should be considered.

Standard childcare opening hours are not compatible with a full-time working week in Korea. The standard opening hours are from 9:00 AM to 4:00 PM. Extended childcare teachers provide services from 4:00 PM to 7:30 PM, with the flexibility to adjust hours in agreement with parents or the operating committee. However, these extended hours are not widely offered as the usual practice for parents is to pick up their children from childcare at 4:00 PM. Working parents, who are not a majority among parents, often experience feelings of guilt when they deviate from this norm, and are concerned about their children being alone in the facilities because there are not enough children for the after-hours programmes (KICCE, 2022). Consequently, many working parents resort to alternative out-of-school arrangements, such as relying on parents, relatives or private babysitters (Yang et al., 2024). For instance, in France, where working hours are comparatively shorter, centre-based ECEC facilities typically operate between 8:00 AM and 7:00 PM (EC, 2023). The government plans to extend basic childcare hours to 5:00 PM. Further progress in this direction would make it easier to combine family with full-time employment. This would also send a signal to parents, shaping their perceptions and norms regarding pick-up times.

Encouraging the supply of workplace childcare services should also be considered given high demand and user satisfaction (Figure 5.9, Panel B). Working parents appreciate workplace childcare for a number of reasons, including opening hours adapted to work hours, easy access for parents especially in case of an emergency, less time lost in dropping and picking up children, and the possibility to breastfeed for those who want to continue to do so after their return to work (World Bank, 2019; Kim, Chae and Hong, 2023). These reasons are particularly appreciated by working parents in Korea, where telework is not common. The workplace childcare services are beneficial to employers too, as they decrease stress among workers, improve loyalty and commitment, and help attract and retain talent (Hein and Cassirer, 2010; World Bank, 2019).

Since 2012, the establishment of workplace childcare facilities has been mandatory for large companies with over 500 full-time employees or 300 female full-time workers. As a result, most large companies (91.5%) have workplace childcare facilities. However, the large firms account for only 0.2% of total employers with more than five employees. As a share of employees, approximately 89% of employees are not covered by the mandate (KEIS, 2023). As a result, the share of workplace childcare has been persistently low at less than 5% of total childcare facilities. A few OECD countries make workplace childcare facilities mandatory with a lower threshold. For instance, it is mandatory for companies with more than 50 full-time employees in Chile and for companies with more than 150 women workers in Turkey (World Bank, 2019; Turkish Labor law, 2017). However, financing and providing childcare should at the outset not be the responsibility of private sector firms who happen to have parents among their employees, regardless of firm size. Larger firms may able to shoulder this burden, but lowering the threshold for mandatory workplace childcare facilities may inadvertently burden smaller businesses, resulting in unintended consequences such as reduced employment opportunities for female workers.

Addressing obstacles faced by firms when establishing childcare would help expand workplace childcare services. The key challenges hindering firms from establishing such facilities include space, cost, and low enrollment (Ministry of Employment and Labour, 2020). Currently, workplace childcare centres must meet all installation standards set forth in the Infant Care Act, such as establishing them on the first floor (up to fifth floor under certain conditions). This can be particularly problematic in Seoul where leasing costs for lower floors are high. Indeed, some firms in Seoul gave up setting up childcare for this reason (Asia Economy Daily, 2017). The requirements should be carefully reviewed, and streamlining the process or introducing a fast-track approval system should be considered. Government support focusses on installation costs (up to 60% for large enterprises and 90% for SMEs) (MOEL, 2024). Employers are required to pay at least 50% of total operating costs. Currently, the burden of operating costs prevents many employers from establishing workplace childcare (KICCE, 2023). Greater support for operating costs, particularly when employers collaboratively establish childcare facilities, could help address concerns about low enrolment as well as cost burdens.

Paid parental leave supports fertility by allowing parents to care for their young children without ending their employment contract. Empirical analysis in Korea suggests that the fertility rate is higher for couples who have good access to parental leave (Bae and Jeon, 2018). Korea offers 119 weeks of paid parental leave in total, the fourth longest duration in the OECD, in the form of an individual, non-transferable benefit for each parent. Despite individual leave rights for mothers and fathers, Korean parents, especially fathers, vastly underutilise paid parental leave compared to other OECD countries (Figure 5.10). At the same time, being able to take parental leave is important to prospective Korean parents, 25% of which cite paid parental leave as the most needed measure to boost the fertility rate as mentioned above (Figure 5.7).

Paid parental leave entitlement is mostly tied to employment insurance which covers only around half of the total workforce (or 77% of wage earners). Employment insurance in Korea funds parental leave benefits as well as unemployment benefits. Employment insurance is not compulsory for self-employed and some platform workers. Some workers choose not to subscribe to employment insurance despite a legal obligation to do so. This leaves many non-regular workers, characterised by inherent job instability and vulnerability, ineligible for parental leave. A provision allowing employers to deny parental leave to workers with less than six months of continuous service creates an additional barrier that disproportionately affects non-regular workers who tend to have shorter periods of continuous employment.

Expanding paid parental leave coverage to the entire workforce is a priority to address the current disparity. One viable approach involves extending employment insurance coverage to all workers, as recommended in the 2022 Economic Survey of Korea. This not only eliminates the discrepancies in paid parental leave entitlements but also ensures uniform access to unemployment benefits, a key policy instrument to prevent hardship, facilitate structural reform and achieve macroeconomic stabilisation.

However, increasing parental leave payments would require additional funding, given the escalating deficits in the employment insurance fund (Figure 5.11, Panel A). When the parental leave benefit system was introduced in 2001, it was decided to fund it primarily through employment insurance, with any financial gaps being covered by general taxation through annual budget allocations. Since 2001, however, only a fraction of the total parental leave benefit payouts has been covered by general taxation (Panel B). With an upward trend in both take-up rates and benefit levels, the share of parental leave benefit payouts in the employment insurance fund has grown. Without additional funding, this would jeopardise the primary role of employment insurance in safeguarding those who are unemployed (NABO, 2023a). An estimate suggests that expanding parental leave entitlements to the entire workforce would require an additional 22% of the current total parental leave benefits expenditure under existing parameters (KIHASA, 2022a). Given the national urgency to boost the fertility rate, and the low share of the total fertility budget allocated to parental leave (Figure 5.7), it is reasonable to consider additional funding.

Another approach could be shifting from the current membership-based approach to a rules-based approach for parental leave eligibility. In contrast to the current system in Korea where entitlements are tied to employment insurance, countries like Finland, Sweden, Denmark, Germany, Norway, and Estonia have established rules-based systems where most of the workforce is entitled to paid parental leave regardless of their enrolment in social insurance (Yang et al., 2024; Koslowski et al., 2022; and EIGE, 2019). In these countries, only basic conditions are imposed such as working in the country. There may be a social insurance fund making the payments or it may be financed pay-as-you-go by taxation, but payments are ultimately guaranteed by taxation. This may simplify the process and it ensures that all eligible individuals, irrespective of prior enrollment, have access to essential benefits. Estonia transitioned from a social security-funded parental leave system to a rule-based, fully tax-supported model in the early 2000s to boost fertility rates and female employment. This shift, together with increasing the parental leave benefit, resulted in a notable increase in parental leave uptake, contributing to a rise in the total fertility rate from 1.37 in 2003 to 1.61 in 2021, and a concurrent increase in the female employment rate from 60% to 72% during the same period (Yang et al., 2024).

Besides stringent eligibility criteria, take-up rates are also low among those who are eligible. Only around three out of ten eligible parents exercised their paid parental leave right in 2022, although most of them were aware of the system, according to Statistics Korea. The utilisation rates are especially low among men and in small businesses (fewer than 50 employees). In 2021, the usage rate of parental leave during the year of the child’s birth in small businesses (5-49 employees) was 54.1% for women and only 2.3% for men. In the same year, the corresponding rate in larger companies (over 300 employees) was 76% for women and 6% for men.

A government survey identified “an unfavourable workplace atmosphere or culture toward parental leave users” (31.8%) and “increased workload on colleagues” (25.2%) as the main reasons for underutilisation (MOEL, 2022). This social pressure to avoid taking up parental leave reflects that employers often do not hire replacements (BGLI, 2016). The cost burden on employers is a primary deterrent (Figure 5.12). The absence of replacement workers generally leads to an increased workload for those who remain. In a survey asking how to cope with the gap left by parental leave, approximately half of the respondents indicated that the remaining employees bear the additional workload (MOEL, 2022). Like in other OECD countries, the situation is especially serious for small and medium-sized enterprises (SMEs) because these firms have a lower number of employees who can share the workload (KIHASA, 2022b). In Korea, SMEs account for more than 85% of domestic employment, surpassing the OECD average of 69% (OECD, 2023a).

Korean employers bear a higher share of the cost of maternity, paternity and parental leave than in most OECD countries. For the first 60 days of maternity leave, employers in companies with over 500 employees are obliged to pay 100% of the ordinary earnings of leave takers (Table 5.1). If the employer hires a replacement, the employer thus has to pay two salaries for one position. For SMEs, the government offers maternity leave benefits for the first 60 days, but the maximum monthly amount is KRW 2.1 million which is only slightly above the monthly minimum wage (KRW 2.06 million or EUR 1 417), and employers are required to cover the gap. In addition, employers, regardless of firm size, have to continue to pay health insurance premia for parental leave takers throughout the leave period, amounting to 3.5% of gross salaries, while other social security contributions can be exempted during parental leave. The government provides financial support for replacement personnel up to KRW 800 thousand (EUR 557) to SME employers, with an increased level of support of KRW 1.2 million per month during the take-over period (up to two months). However, this was deemed insufficient to alleviate the financial burden. For instance, when replacing employees on the minimum wage taking maternity leave for 30 days, the additional costs for SME employers were estimated at around KRW 2.01 million (EUR 1 394) per month (NABO, 2023a), not including the time and expenses associated with recruiting new staff and providing necessary training. SME employers now can receive a monthly allowance of KRW 2 million (EUR 1 376) for the first three months and KRW 300 thousand (EUR 209) thereafter when granting parental leave for 30 days or more, but this allowance is no longer contingent on hiring replacement staff.

The burden of financing maternity, paternity and parental leave benefits and associated costs should in general be shared between parents and the government. Employers should be shielded from this cost, as they will tend to respond by discriminating in hiring and discouraging leave taking. Measures are also needed to alleviate the financial burden on employers of hiring replacements. One effective approach would be to almost fully compensate maternity leave benefits using public sources, as is the case in many OECD countries, including Denmark and the United Kingdom (Government of the United Kingdom, 2023; Strang et al., 2016), or to compensate for the additional costs of hiring replacements during maternity leave as is the case in Italy (Clauwaert et al., 2000). In the United Kingdom, larger businesses can reclaim 92% of the maternity leave payments, and small employers 103% (Government of the United Kingdom, 2023). In France, employers with fewer than 50 employees receive financial support for temporary replacements during parental leave, covering up to 50% of the monthly minimum wage for each replacement (Tissot, 2023).

Enhancing workforce planning and ensuring more effective hiring of replacements can be achieved by extending the advance notice requirement for parental leave. Currently, employees seeking childcare leave must submit their application at least 30 days before the scheduled start date in Korea. This is a shorter notice period than in many OECD countries. In Sweden, for example, employees are required to give notice at least two months prior to the intended start date of childcare leave (Forsäkringskassan, 2023). Luxembourg mandates the notice no later than two months before the start of maternity leave (Government of Luxembourg, 2023).

Another challenge for workers taking parental leave is the low benefit level. Parental leave benefits are relatively low in international comparison due to a low benefit ceiling, leading to a relatively large reduction in household income. The parental leave benefits are set at 80% of previous earnings, similar to Sweden, Norway, and Iceland, but they are capped at around 40% of the average wage (at KRW 1.5 million or EUR 1 043 per month), much lower than countries such as Sweden (95% of the average wage), Norway (124%) and France (82%) (Koslowski et al., 2022).

The government doubled the ceiling for dual income parents in 2022 to encourage fathers to take parental leave. This increase only applied if both parents chose to take parental leave. After this reform, take-up rates among fathers increased by approximately 30% compared to the previous year (NABO, 2023a). Given the positive outcomes, the government further increased the maximum by 1.5 times in January 2024 (e.g., to KRW 4.5 million or 130% of the average wage) (Table 5.1). As a result, the economic disadvantages of dual-income couples due to parental leave have been greatly reduced. For instance, if both parents, each earning an average income, take parental leave for six months at the same time, the household income reduction compared to previous earnings is now approximately 10%, a substantial improvement compared to the 60% decline in 2021 (Figure 5.13, Panel A).

The government should also increase the general ceiling applicable when only one parent takes parental leave, which has seen minimal change over time (Figure 5.13, Panel B). This is an obstacle to the broader adoption of parental leave, particularly among sole leave takers. Assuming that a single-income father earns the average wage, six months of parental leave will still result in a decrease in household income of more than 60% (Panel B). The government plans to raise the ceiling from KRW 1.5 million to KRW 2.5 million for the initial months. This is a considerable improvement, but still represents only around 70% of the average wage and remains below the ceiling applied to some dual-income earners mentioned above. In most OECD countries, one ceiling around the average wage applies across all types of households and scenarios (Koslowski et al., 2022). For instance, whether both parents take parental leave or only one does, the applied ceiling for each income is the same. Empirical analysis suggests that higher parental leave benefits increase fertility in Korea (Kwak, 2022; Choi and Ham, 2024).

Higher replacement rates for parental leave will lead to higher direct costs under the existing setting. Korea can limit the extra fiscal burden by giving parents the flexibility to shorten parental leaves at higher replacement rates, such as in Austria and the Czech Republic. The introduction of such flexibility would also help increase fathers’ uptake. For example, when the Austrian government allowed shorter leave options with a higher replacement rate to parents in 2008, fathers’ leave taking increased by 23% (Ziegler and Bamieh, 2023). Starting this year, the Korean government extended the maximum period of parental leave per parent by another six months. The government plans to make it flexible by offering a higher benefit for the first few months and then providing support at lower levels of benefits for subsequent periods without reducing the overall duration of leave. This is a positive step. An alternative could be to allow parents to set the length freely from six to 18 months, while the overall envelope remains the same so that the replacement rate ceiling for a six-month leave (or less) becomes approximately 120% of the average wage, while it remains 40% for those who choose 18 months. These options would make the parental leave more responsive to parents’ needs while incentivising timely return to work. Overly long parental leaves tend to lead to skill deterioration, to make the return to work difficult, and to increase the gender pay gap. This is especially relevant to Korea where wages rise relatively rapidly with seniority.

In Korea, like in many other OECD countries, parents with children aged eight or younger have the right to flexible working arrangements, including flexible or reduced working hours and teleworking. For instance, parents can reduce weekly working hours to a range between 15 and 35 hours for up to two years per parent, with partial subsidies covering the initial five reduced hours. The parents have the right to return to full-time work afterwards. However, in countries characterised by long working hours and a rigid working culture, such as Korea, employees may hesitate to use these arrangements due to concerns about potential negative impacts on their income or career evaluations (Sobotka et al., 2019). Indeed, only 16% of eligible employees utilised these options in 2022, well below the OECD average of 28% in 2015 (MOEL, 2023; KWCS, 2015). The government plans to extend the flexible working arrangement further to three years and expand eligibility to parents with children aged 12 or younger, with subsidies covering the initial ten reduced hours. This is a positive step, but more could be done.

Over the past decade, the average usual weekly hours of full-time workers decreased by 8.2 hours, reaching 43.2 in 2022 (Figure 5.6). This reduction marks the fastest pace among OECD countries, where the average decline over the same period stands at 1.5 hours, but typically from a lower starting point. Despite this progress, relatively long working hours still present significant obstacles for parents or prospective parents. Korea reduced the statutory maximum weekly working hours from 68 to 52 hours in 2018, which has improved work-life balance, but this is still above 48 hours, the statutory limit most commonly observed in OECD countries. The current law mandates that overtime cannot exceed 12 hours per week, on top of a 40-hour regular workweek, capping total hours at 52 per week. The government is considering increasing flexibility by allowing workers to accumulate overtime for extended breaks. However, even now, many employees are unable to fully utilise their legal annual leave (15 days), with an average annual leave utilisation rate of 76%, due to a number of reasons such as the preference for monetary compensation in exchange for unused annual leave, lack of replacement workers and worries about burdening colleagues (MCST, 2023), raising concerns that the flexibility gained would be one-sided. Flexibility can help parents combine work and family if it is balanced between employers and employees, but can have the opposite effects if it is unbalanced in favour of employers.

Increased teleworking would also improve work-life balance, given that Korean workers spend an average of one hour commuting (in each direction), the longest in the OECD. Teleworking is much more prevalent in large companies at 51% compared to only 27% in those with 5-30 workers (KIHASA, 2022c). Contributing factors to this disparity are career disadvantages for those who utilise the teleworking option and the lack of a teleworking system (KIHASA, 2022c). In support of teleworking adoption, the government offers consulting services, subsidies and refunds for infrastructure investment costs to SMEs. In addition to this, efforts are needed to reduce workplace disadvantages for those who use flexible working arrangements (see below). Some instances in private companies suggest that proactive implementation of flexible working arrangements has boosted productivity and market valuation (Box 5.2).

To enable employees to freely utilise their parental leave or flexible working time rights, they need assurance that doing so will not lead to repercussions, such as slower career progression (OECD, 2019a). In a survey carried out in 2018, 70% of those who utilised parental leave reported facing various disadvantages on their return, notably concerning promotions, exclusion from significant tasks, and discrimination in bonus allocation (KWDI, 2018). This is despite legal prohibitions against discrimination related to pregnancy, childbirth, and parental leave.

Korea has the largest gender wage gap in the OECD, despite a decline from 37.2% in 2015 to 31.2% in 2022. Observable factors like the increase in the proportion of women with higher education in high-wage industries and occupations more than fully accounted for the decline, even as the practice of paying women less than men in similar conditions widened the wage gap (Choi and Ham, 2024). Korea has the highest educational attainment for women in the OECD, but one of the lowest shares of women managers, and the highest gender pay and employment gaps in the OECD (OECD, 2023b). According to a survey, one in four women reported feeling discriminated against during job recruitment (24.4%) and in terms of pay (25.1%) (KLI, 2023). In contrast, only 7.6% of men reported similar experiences of discrimination in these areas. A number of empirical analyses confirm the presence of discrimination during job recruitment (Choi and Ham, 2024). For instance, Kim and Oh (2019) found that women earn 17.4% less than men in entry-level jobs, despite having identical resumes. Such a gender wage gap likely contributes to gendered role separation among couples during childbearing years, as couples will minimise income loss if the women work fewer hours or leave the labour force altogether. This may in turn perpetuate employer expectations that women are less likely to work during their childrearing years.

Gender discrimination reflects a number of factors, including a lack of legal enforcement and weak sanctions (OECD, 2019a). In Korea, women who have been discriminated against face difficulties in making a case. When a complaint is filed, many cases have been dismissed due to a lack of supporting evidence or resolved only through corrective measures without imposing penalties (KWDI, 2021; Edaily, 2024). These gaps can result in a climate where workers feel compelled to endure disadvantages, believing that raising concerns may not yield tangible resolutions or protection. Indeed, according to a survey, three out of four workers tolerate gender discrimination mainly due to perceived ineffectiveness in addressing concerns (Human Rights Commission, 2018).

Significant efforts have been made recently. While about 55 000 women workers were estimated to have exited their jobs during pregnancy, only 535 workplaces were inspected in 2016 (Kim, 2017). To improve the situation, since 2016, Korea has conducted “Smart Labour Inspections” in workplaces with staff who are pregnant or have given birth, using relevant information from the National Health Insurance Service and Employment Insurance. The number of labour inspectors nearly doubled from 1 538 in 2016 to 3 058 in 2023. The number of inspected workplaces also increased to 1 028 in 2023. The number of reported discrimination cases related to maternity leave increased from 49 in 2016 to 91 in 2023. In 2022, Korea permitted the existing National Labour Relations Commission, comprised of members representing workers, employers, and public interests, to issue corrective orders to employers. These orders include ceasing discriminatory acts or paying appropriate compensation after investigation and interrogation when affected workers apply for remedy. Failure to comply with a corrective order without justifiable grounds may lead to an administrative fine of up to KRW 100 million (EUR 74 000).

To tackle the persistent gender discrimination, Korea should strengthen compliance and enforcement measures further. Despite increases, labour inspectors are struggling with chronic manpower shortages (KLI, 2023b), resulting in inadequate supervision of many workplaces (KLI, 2024). Increasing the number of labour inspectors further to cover more workplaces should be considered. This is also important to increase employment insurance enrolment, tackle labour market duality, and ensure general compliance with labour law (OECD, 2022a). At the same time, strengthening sanctions on employers who are found to have discriminated will help increase voluntary compliance from employers. In Korea, employers face fines up to KRW 5 million (EUR 3 470) when found guilty of gender discrimination in hiring, and up to KRW 30 million (EUR 20 800) with up to five years in prison for gender discrimination in promotions. The fine is lower than in some other OECD countries. For instance, the fine is up to EUR 450 000 in the Netherlands or EUR 300 000 in Germany for gender discrimination cases (OECD, 2019a). In Ireland, in cases of discrimination, employees can seek reinstatement to their previous position and claim financial compensation for the preceding six years without any ceiling for any damages suffered due to the discrimination under the Employment Equality Act (IHREC, 2024). Gender discrimination in the workplace may lead to imprisonment in Belgium, for one month to one year (Baker Mckenzie, 2023). In France, the fine can be up to EUR 225 000, along with imprisonment for up to three years. The Finnish Penal Code prohibits discrimination at work based on sex and several other grounds with penalties varying from a fine to a maximum of two years imprisonment (ILO, 2023). The government’s efforts to strengthen the corrective measures mentioned above should be accompanied by increasing the fines imposed on employers in the first place, acting as a deterrent against potential violations.

Korea should strengthen pay transparency measures. Pay transparency helps close the gender wage gap, by requiring employers to disclose information about pay structures and salaries. This not only holds firms accountable for gender disparities but also empowers workers to challenge inequities and generates public pressure for change, prompting employers to take corrective action. Since 2020, businesses have been required to disclose gender wage data through online systems such as Alio and Clean Eye. Korea mandates gender pay reporting, but firms are not requested to provide detailed information necessary for meaningful analysis and action. Among the 21 OECD countries that mandate gender pay reporting in the private sector, Korea and the United Kingdom are the only ones that request only an aggregate, company-level estimate of the wage gap (OECD, 2023g). In all other countries, more granular information, such as by job category, parental status or seniority, is required for reporting. Furthermore, Korea mandates reporting only for large firms (with a minimum of 500 employees, or 300 or more full-time employees for companies obligated to provide disclosure under Article 14 of the Monopoly Regulation and Fair Trade Act). Moreover, the absence of mandatory equal pay auditing processes further hinders progress in addressing inequalities (OECD, 2023g). To reduce the large gender wage gap, the government should consider expanding reporting requirement to smaller firms, demanding more granular pay statistics to identify and address specific barriers faced by women, and mandating equal pay auditing processes, as practiced in many other OECD countries, including Canada, Finland, France and Sweden (OECD, 2023g; Cowper-Coles et al., 2021).

Among unmarried individuals aged 19 to 34, 41% of men and 26% of women identify financial constraints as their primary deterrent to getting married. As discussed above, childcare is largely free, but subpar quality, limited accessibility, and short opening hours lead many working parents to spend extra money on babysitting. Furthermore, housing, education and tutoring are expensive despite various types of financial transfers to families with young children (Box 5.3). More than half of young people (51.2%) think that they have to own a house to get married, especially in big cities (KRIHS, 2023). However, the housing price-to-income ratio in Metropolitan areas increased from 6.7 in 2012 to 10.1 in 2021 (KOSIS, 2023), making home ownership challenging to achieve for young people. High private education costs are another factor reducing fertility rates. Korea’s private tutoring participation rates are very high, largely reflecting fierce competition to enter prestigious universities. Many parents therefore allocate a significant portion of their income to private tutoring. Meanwhile, the income of young adults has decreased compared to other age groups over the past 10 years, while their debt has increased (Figure 5.14).

Several evaluations suggest that public supports aimed at helping women balance career and family have a greater positive effect on childbirth than direct financial support to parents, because cash transfers need to be very generous to cover more than a small portion of the direct and indirect costs associated with having children (Doepke et al., 2017; Colombo et al., 2011). There is room to increase financial transfers further, given that the costs to raise children mostly increase during school age in Korea while current support is skewed towards young children, but reforms to optimise early childhood education and care and parental leave outlined above should take priority to direct financial support to parents. Likewise, targeted financial support to parents to shoulder housing costs may be helpful, but structural reform to correct the underlying causes for high housing costs and improve youths’ job prospects would be more effective.

Many young people either postpone their careers to land high-quality jobs in large firms, or start at smaller companies with non-regular contracts. Over 40% of the employed 20-29 year-olds were non-regular workers in 2023 (Statistics Korea, 2023). Raising youth employment while increasing their job security and labour market income would give young people the confidence in the future they need to form families and have children, and it would help ease the consequences of ageing. Empirical analysis suggests that regular employees have a 1.65 times higher probability of marriage and an approximately 2 times higher probability of childbirth than non-regular employees, controlling for individual characteristics like education level, residential area and industry (FKI, 2022). The employment rate of youth (aged 15-24) was 29% in 2022, well below the OECD average of 43%. The share of university graduates among youth is the highest in the OECD, as highly-educated youth race for credentials to secure attractive careers on regular contracts in large companies, while many of the available jobs are in SMEs, on non-regular contracts and require less human capital. Large differences in pay, social insurance coverage, job security and job quality between regular and non-regular workers, largely reflecting differences in productivity between SMEs and large companies (Chapter 3), encourage young people to queue for jobs in large firms to avoid low-wage precarious jobs, as documented in the 2022 Economic Survey of Korea (OECD, 2022a).

Despite efforts to break down labour market dualism, the share of non-regular workers increased from 32% in 2014 to 37% in 2023 according to Statistics Korea. According to an OECD survey, 61% of 25-54 year-olds reported that the risk of losing their job or income was among their top-three worries, as against a 51% OECD average (OECD, 2024c). Policies to reduce productivity gaps between SMEs and large companies (Chapter 3) and reforming low-skilled immigration policies (see below) would help, but direct measures to weaken firms’ incentives to hire non-regular workers are also needed, accompanied by a strengthened social safety net. Relaxing employment protection for regular workers would reduce the cost and uncertainty of dismissal, while income replacement for the unemployed could be strengthened by raising the ceiling of employment insurance while lowering the floor (2022 OECD Economic Survey). A survey of 70 employers reports that they hire non-regular workers to ensure labour market flexibility to respond to market fluctuations, thereby avoiding the expenses associated with laying off regular workers (Saram-in, 2021). Employment protection for regular workers is relatively high compared to other OECD countries, ranking as the 13^th strictest in 2019. Regular workers are strongly protected from dismissal by laws and labour unions, and delays before final court rulings are excessive. Dismissals for economic reasons are strongly regulated, with many procedural hurdles for firms. There must be “an urgent managerial necessity”, a criterion that is not well-defined and difficult to prove in court. Consequently, unpredictable layoff costs, compounded by lengthy legal processes, drive up incentives for hiring non-regular workers (2022 OECD Economic Survey). Simplifying and accelerating the remedial procedure for unfair dismissals, clarifying criteria such as providing more explicit guidance on what constitutes “urgent managerial necessity”, together with increasing the representativeness of unions as discussed below, could improve the situation.

Labour unions are relatively strong but unrepresentative of the majority of workers. Only 3% of non-regular workers are labour union members, in contrast to the 20% membership rate among regular workers (Statistics Korea, 2023). The labour unions' predominant focus on the interests of regular employees, especially those in large companies and the public sector, has contributed to the gap in employment protection compared to non-regular workers. The low unionisation rate is also an issue in general, as fragmented and poorly representative social partners are likely to be less inclusive and increase the level of strife (OECD, 2017a). Korean unions received grant funding from the central government until 2023. Union fees could also be deducted from income taxes, but were pooled with other deductions and subject to a cap on total deductions. In order to increase the representativeness of unions, public funding should increasingly incentivise membership, for example by applying a separate ceiling for tax deductions of union fees, but could also incentivise the membership of non-regular workers more directly. The current government abolished union funding partly due to the lack of transparency on the use of public funds in 2024. If union funding is reinstated along with improved transparency, the aforementioned measure could be considered to enhance the representation of the unions.

Another reason for hiring non-regular workers is their low labour costs, stemming partly from their low enrolment rate in social insurance. Hiring workers who are not enrolled in social insurance schemes (i.e., national pension, health and employment insurance) lowers employers’ labour costs by about 8-9%. Increasing the enrolment rate, notably through a stronger monitoring system and labour inspectorate, and integrating social contributions and tax collection, should be considered. In 2020, Korea outlined a roadmap to achieve full employment insurance coverage by 2025. The original plan was to increase enrollment to 17 million in 2022 and 21 million in 2025. However, as of December 2023, enrollment stood at only around 15.83 million despite some efforts such as expanding employment insurance to platform workers and several occupations such as agency drivers in 2021-22, and easing requirements for employment insurance enrollment in small agriculture and fisheries businesses in 2023. The government plans to integrate social contributions and tax collection as recommended in the 2022 Economic Survey of Korea, which would help increase compliance. Increasing social insurance enrolment rates of non-regular workers is a key step to reduce duality and protect those workers most in need of protection. As part of such reform, parental leave benefits should increasingly be funded by general taxation, while employment insurance contribution rates should be adapted to overall expected liabilities.

Enhancing the labour market outcomes of young people would improve their ability to afford housing, but the role of housing policies should not be overlooked. An empirical study showed that the doubling of housing prices between 2013 and 2019 reduced the likelihood of people getting married by between 4 and 5.7% (Kang, 2022). An empirical study in OECD countries also found that increases in household expenditure on housing had a significant and negative effect on fertility rates (Fluchtmann et al., 2023).

Seoul is one of the most densely populated cities in the OECD (OECD, 2021b). In particular, many parents flock to popular areas such as Gangnam and Seocho, where good schools and high-quality private education providers are concentrated (Jones, 2020). This, along with the increase in single-person households over the past 20 years, has increased demand for housing in Seoul. However, supply has not followed suit, resulting in rising prices (BOK, 2021). The housing supply rate in Seoul (the ratio of the total number of housing units to the total number of households) has decreased since 2016, and stood at 93.7% in 2022 (Statistics Korea, 2023). According to Statistics Korea, the total number of households nationwide is expected to increase until 2039 despite the population decline, due to increasing numbers of single-person households. This means that the supply of housing to meet new demand must steadily increase at least for the next 15 years to improve the balance between supply and demand.

The government's strategy to boost the supply of housing includes providing 2.7 million homes nationwide and 1.58 million homes in the Seoul metropolitan area from 2023 to 2027, a 32% increase compared to the addition to housing supply from 2018 to 2022. In contrast to the prior administration, the plan aims to invigorate private housing supply by simplifying regulations and procedures. Notably, the government lifted presale price caps in most areas of Seoul, a longstanding practice in Korea aimed at stabilising housing prices for privately-built new apartments. Additionally, some reconstruction regulations were eased. However, due to the recent real estate downturn (Chapter 2) and escalating construction costs, housing starts decreased by 37% nationwide and 56% in Seoul in 2023 compared to the previous year. Given the two to three-year construction timeline, this implies a 37% reduction in new units available for occupancy in 2025, potentially exerting upward pressure on market prices going forward.

To further stimulate housing supply, the government should consider further relaxing regulations that hinder private sector involvement with a particular focus on reconstruction (e.g., rebuilding or repurposing), which is crucial for addressing housing shortages in densely populated Seoul (OECD, 2019b). Since 2006, the Korean government has been collecting 'excess' profits expected from apartment reconstructions. Under the current law, if the average profit per apartment cooperative member of a reconstruction exceeds a certain limit (currently KRW 80 million), the government collects up to 50% of the profit in advance. This practice causes financial strain among cooperative members, reducing incentives for residential construction. The government should consider raising the limit further or abolishing it. While the original intent was to promote housing price stability and social equity by reclaiming excess profits, this practice unintentionally hampers reconstructions and could lead to double taxation, as homeowners are already subject to capital gains tax upon selling the property. Furthermore, the government should also consider lifting presale price caps in the districts where they remain including Gangnam and Seocho, as the shortage of housing supply in these areas is a driving factor behind escalating housing prices, as mentioned above. The presale price caps, which diminish housing project profitability, keep down both the quantity and quality of housing supply. While they temporarily slow housing prices in the short run, they likely raise them over the long run (Jones, 2020; Yun and Kim, 2014; KDI, 2009).

Social housing policies should also be reviewed, as social housing is an important source of affordable housing for young people. With increases over the past few years, social housing represents around 8% of the total housing stock, slightly higher than the OECD average (Cournède et al., 2022). However, a significant share is vacant. From 2009 to 2019, on average, 17 000 public housing units were supplied to newlyweds annually, but only 51% were occupied because the quality, location, and size did not match the needs of newlywed couples (Board of Audit and Inspection, 2021). Despite efforts to enhance the quality and aesthetics of public housing in Korea over the years, these units still generally lag behind private housing, resulting in a persistent stigma attached to public rental housing residents (Woo et al., 2021). This potentially deters some newlyweds from considering these housing options. Additionally, public housing units targeted at newlyweds have predominantly been less than 50m², potentially falling short of the desired size. Indeed, smaller-sized public housing has shown a higher non-occupancy rate compared to larger units.

Since 2016, public housing support has been part of the low fertility rate budget, and its budget has grown nearly fivefold, now comprising the largest portion of the current low fertility rate budget (Figure 5.7). Starting from March this year, the government plans to provide public housing to 70 000 households with newborns. Details are not yet available, but the quality of the new housing units should be enhanced to optimise outcomes. For instance, aligning design guidelines for public housing with those of neighboring housing developments should be considered to ensure physical consistency and reduce gaps in the overall design quality of housing. Furthermore, the government should consider increasing the supply of larger-sized public housing to better meet demand.

De facto families where couples live together but are not married are legally recognised in most OECD countries, including Korea. These couples often have weaker rights than married couples in cases such as inheritance and parental leave (Yang et al., 2024). Civil or registered partnerships exist in two thirds of OECD countries, typically giving the same legal rights as those married couples enjoy, although such rights are reserved for same-sex couples in a number of these countries. According to a survey, 28.3% of respondents in cohabitation or de facto marriage in Korea reported experiencing limitations in receiving government support benefits such as housing policies and health insurance (MOEL, 2022). Although cohabiting couples can legally apply for parental leave, obtaining it can be challenging in practice, and they may be categorised as single parents once they have a child. In addition, cohabiting couples do not have inheritance rights. Consequently, the surviving partner of a cohabiting couple risks abruptly losing her or his place of residence if the partner dies. The share of the population aged 13 and above who find cohabitation without marriage acceptable has increased, reaching 65% in 2022, with the share for young people (aged 19-34) at 81% (Statistics Korea, 2022). Based on this social consensus, taking further steps towards equal treatment of alternative family constellations could give couples an opportunity to form a family in incremental steps without incurring the immediate costs and expectations attached to marriage (Yang et al., 2024). Cohabiting can also provide at least a short-term financial relief for a couples’ housing burden (KWDI, 2021).

Assisted Reproductive Techniques (ARTs) are increasingly important in addressing fertility challenges across the OECD, given that the average age of first-time mothers has increased, and fertility declines as women age. Studies suggest that the coverage of fertility treatment supports is positively correlated with the fertility rate (Grant, 2006; OECD, 2016b). Some OECD countries with high fertility rates provide fertility treatments to all citizens. For instance, France, Sweden and Denmark offer universal and free fertility treatments under tax-funded national health insurance. In such countries, there are twice as many fertility treatment cycles per million compared to countries like Italy and Portugal, where only heterosexual married couples are eligible for coverage (Silva et al., 2012; OECD, 2016b).

Korea has enhanced public support for fertility treatments to married couples. In 2017, national health insurance began covering ARTs including In vitro fertilisation, intrauterine insemination and other fertility treatments (up to 70% of total costs depending on the treatment). Additionally, local governments provide subsidies to finance ART costs not covered by national health insurance, such as progesterone medications. In 2019, the age limit for support eligibility was lifted. According to a study, these policies have contributed to higher use of ARTs and better pregnancy outcomes (Cha et al., 2023). The number of individuals undergoing fertility treatment in Korea has grown from 227 922 in 2018 to 238 601 in 2022. Babies born to mothers receiving support for fertility treatment currently make up 8% of total births. However, in 2022, funding for ART subsidies was shifted to local governments, resulting in regional disparities (NABO, 2023b). For instance, Seoul offers relatively high support (e.g., up to KRW 1 million for fresh embryo transfer treatment in Gangnam-gu) without an income threshold for eligibility, while most other regions offer lower support (e.g., KRW 0.5 million for fresh embryo transfer treatment in Suncheon-si) with an income threshold for subsidies standing at 180% of median income in most regions (NABO, 2023b). The government is planning to eliminate the income threshold for all regions and increase subsidies to reduce out-of-pocket costs, which is a positive step. Furthermore, the government should consider expanding coverage to all citizens going forward.

Many Korean parents allocate a sizeable portion of their income to private tutoring, making education expenditure another major hurdle to have children. In 2023, 78.5% of Korean primary and secondary school students took private tutoring (Ministry of Education, 2024). Monthly average expenditure for private tutoring per student has increased since 2015, reaching KRW 434 thousand, roughly 10% of average household disposable income in 2023 (Figure 5.15). Empirical analysis suggests that prevalence of private tutoring is negatively associated with a country’s total fertility rate (Anderson, 2018). Indeed, 49.2% of Korean parents think the cost of private tutoring is very burdensome (KEDI, 2022), and 27% point to the burden of their children's education and childcare as one of the main reasons for the falling fertility rate (PCASPP, 2023).

The excessive investment in private education is largely due to a strong preference to enter top universities. In Korea, there is an implicit but well-known ranking of the most prestigious universities. Given the dual labour market and a scarcity of quality jobs, graduates from top universities are much more likely to obtain a high salary. Lee and Koh (2023) found that graduates from top-tier universities earn 24.6% more than graduates from bottom-tier universities at the time of labour market entry in Korea, and the wage gap peaks at 50.5% between the ages of 40 and 44. The intense competition to gain admission to these prestigious universities, dubbed “the golden ticket syndrome”, leads many students to prioritise the name of the institution over choosing a field of study according to their interests and skills (OECD, 2022a). According to a government survey on factors influencing university choice, 24% of respondents considered university prestige most important, while 32% prioritised aptitude and interest (MOE and KRIVET, 2023). It further suggests that over the past three years, more have prioritised prestige, while fewer have prioritised aptitude and interest. There is also significant competition to enter medical schools. Doctor pay is high compared to other OECD countries, especially for specialists (OECD, 2023c), and doctors can remain in their career until they reach old age, unlike many other professionals who are typically forced out around the age of 50 (see below).

This situation where almost all students participate in inefficient competition from which only a few emerge as winners is a huge waste for the country. Intensive tutoring has a detrimental effect on adolescent mental health (Xu and Lee, 2023), and Korean youth report low life satisfaction relative to other OECD countries (OECD, 2023f). More than 80% of Korean college students perceive high school as a “life-or-death battlefield”, a significantly higher proportion than in the United States (40.4%), China (41.8%) and Japan (13.8%), countries with relatively comparable entrance exam systems (Kim, 2017). Furthermore, the situation has implications for social inequality. Spending on private tutoring increases with parents' income (Figure 5.16, Panel A), and participation in private education is positively correlated with academic achievement (Panel B).

Efforts to reduce private tutoring have ranged from enhancing the quality of public education to directly regulating private tutoring institutions. Investment in public education has increased to the OECD average, and the number of students per teacher is relatively low (Minea-Pic, 2023). The university entrance exam, the College Scholastic Ability Test (CSAT), has also been reformed to reduce the burden on students, such as removing off-curriculum “killer questions” from the university entrance exam as of 2023. The government has also directly regulated tutoring centres (hagwons) by recommending them not to offer tutoring ahead of the curriculum from 2014, and banning classes after 10 PM from 2008. Such reforms were unsuccessful, as they did not address the core issues of elite universities and labour market dualism (see above). Many OECD countries have university entrance systems with low levels of competition and hence little private tutoring. More than half of OECD countries adopt open admissions systems for tertiary education, meaning that there are no restrictions on the number of students accepted into Bachelor's or Master's programmes at universities in general. In Germany, for instance, where public universities are free and unranked, all upper secondary graduates who passed the university entrance exam are secured a seat in the university and the major of their choice except for some popular majors (Box 5.4). Introducing a credit transfer system which allows credits taken at one university to be counted towards a qualification studied for at another, and facilitating joint degrees as in most European universities (EC, 2024) could help students pursue their academic interests at various institutions, reducing the emphasis on a few prestigious universities. Raising investment in higher education, which is low compared to the OECD, should be considered, particularly in selected universities outside of the Seoul metropolitan area to reduce the preference for Seoul-based universities. The government has programmes to support local universities, such as the Regional Innovation System and Education (RISE), which encourages municipalities to make necessary investments in local universities, and the Glocal College 30 Project, a targeted investment in key local universities for the development of success models, but these need to be accelerated.

Increasing the number of university places in popular majors would also help reduce the intense competition for a few spots. At the same time, relocating some prestigious universities or certain popular departments outside the Seoul metropolitan area could also be considered, to contribute to a balanced development of the country. In line with the recommendation of the 2022 Economic Survey of Korea, the Korean government allowed universities to adjust student enrolment across majors from the 2024 school year (Ministry of Education, 2022). The government also plans to increase the medical school enrollment quota to address doctor shortages, which is expected to reduce the intensity of competition to enter medical schools. Korea has one of the lowest concentrations of doctors, with 2.5 doctors per 1000 people (2021, OECD average 3.7). On top of that, allowing universities more flexibility to decide their total enrolment would encourage them to be more responsive to student demand and technological change, reducing competition for prestigious universities. In the mid-1990s, places at universities located in non-Seoul metropolitan areas increased due to deregulation, while caps on universities in the Seoul metropolitan area were maintained. Since then, competition for admission to universities in the Seoul metropolitan area has grown. Han (2022) found that regulated universities within the Seoul metropolitan area tend to be less responsive to student demand. Moreover, the deregulation of student enrolment in non-Seoul metropolitan areas led to a 9 to 10% decrease in participation in private tutoring in those regions (Park et al., 2018). As noted in the 2022 Economic Survey of Korea, caps on student enrolment in the Seoul metropolitan area need to be gradually relaxed to allow increased enrollment in majors of upcoming fields such as AI and semiconductors, alongside increased investment in universities outside the Seoul metropolitan area.

Despite continuous investments in public education, a significant number of Korean parents express dissatisfaction with the current school system (Figure 5.17), leading them to enroll their children in private tutoring. The dissatisfaction extends to the quality of regular and extracurricular classes. School ends before 2 PM in the lower primary grades, and a lack of quality daycare services for young school-age children pushes one in five parents with a primary school child to use private tutoring (Statistics Korea, 2023). Furthermore, it compels mothers to exit employment or take parental leave (Choi et al., 2022). Currently, extracurricular classes are open until 5 PM for first and second-grade students in primary school, shorter than full-time normal working hours for parents. The government plans to extend extracurricular class hours further to 8 PM (“Neulbom School” programmes) for first-grade primary school students in 2024, second-graders in 2025 and all primary school students in 2026, to support working parents. To ensure its success, the reform should be implemented with a keen eye on quality. The after-school participation rate for primary school students was 56% in 2023, much lower than the 86% participation rate in private tutoring, suggesting it fails to meet students' needs (Ministry of Education, 2024). As in many OECD countries, after-school classes could be better linked to regular classes and offer classes tailored to students’ learning levels (OECD, 2024b). For example, the new all-day secondary school in Germany, which provided students with personalised learning, showed that students who received quality individual support were less likely to engage in private tutoring (Guill et al., 2020). In the United Kingdom, the government has introduced the National Tutoring Programme, which provides schools with a certain amount of money per pupil to use external, certified mentors and tutors, or to teach in school themselves, to address inequalities in learning (Minea-Pic, 2023).

Strengthening the quality of regular lessons would also help reduce private education costs. In a recent survey, 50% of parents answered that their children take private tutoring to supplement regular school classes (Statistics Korea, 2023). Measures are needed to provide public education that satisfies the learning needs of students. According to an analysis in Germany, students who received quality individualised and personalised learning during regular classes were less likely to engage in private education (Guill et al., 2020). Similarly, in Scandinavian countries, which seem to have been least affected by the rise of private tutoring, both slow learners and high achievers receive education tailored to their needs within the framework of public education (Bray, 2021). Increasing the time teachers spend on preparation and teaching could help teachers to better cater for students' individual learning needs. Korean teachers’ preparation and statutory teaching time per class is low compared to the OECD average, while they spend a higher proportion of their working time on administrative tasks, which may contribute to the lower quality of education (OECD, 2024b).

Digital technologies, including artificial intelligence (AI), could improve the quality of education by personalising education, making it more inclusive and enhancing cost-effectiveness. For example, in the classroom, AI applications can directly support students’ learning through adaptive learning systems which provide each student with a tailored curriculum or task based on their knowledge level (OECD, 2023d). These learning tools can be used for after-school or home supplementary learning, reducing the demand for private tutoring to some extent. Further integrating digital technology in schooling may warrant additional investments in facilities, teacher training, and curriculum development. High-quality tutoring lessons delivered digitally for free to students would help ease the inequality that private tutoring creates. For example, Seoul Metropolitan City runs the “Seoul-Learn” platform, which provides online learning contents from private tutoring institutions to students in vulnerable households.

As discussed in the introduction, ageing is inevitable, and the share of the population in working age will shrink. Immigration can help remedy labour shortages going forward, if well implemented. However, relying solely on increased immigration would not be enough. Increasing participation and employment across the board and mobilising underutilised labour resources, notably of women and youth as discussed above, as well as lengthening working lives, and policies to promote productivity (Chapter 3) are also necessary to address population ageing challenges in the longer term.

Encouraging elderly individuals to remain in or re-enter the workforce is increasingly important in boosting overall employment. About half of Korea’s population is aged 50 or above, with 20% surpassing 65, and the share will grow further. With the proportion of elderly individuals in the total population increasing, the employment of seniors has rapidly increased, driving a positive trend in Korea’s employment rate over the past 20 years (Figure 5.18, Panel A). This trend partly reflects enhanced education and increased wage-earning experience since the baby boomers entered old age (Panel B).

Many workers in Korea express a desire for prolonged employment. According to a 2023 government survey querying individuals aged 55-79 about their future work intentions, approximately 70% indicated a preference to continue working. For those aged 55-64, the desired retirement age was around 70, well above the pensionable age of 63 (Statistics Korea, 2023a). The primary motivation cited for wanting to work is “to support their living expenses”, with 56% of respondents mentioning this reason. The potential for extended employment is further facilitated by the good health conditions prevalent among the elderly. Notably, Korea’s life expectancy has experienced a significant and rapid increase to around 83, making it the second-highest in the OECD after Japan (OECD Health Status database). Additionally, healthy life expectancy, reflecting disability-free years, has grown by 5.1 years over the past two decades, reaching 72.5 in 2021.

According to OECD simulations, if the employment rates for the 55-59, 60-64, and 65+ cohorts were to increase by one-third of the difference with the previous age group by 2040, total employment would be 8% higher in 2070 compared to the no-reform baseline scenario. This, in turn, would lead to a corresponding 8% higher level of GDP in 2070 (Figure 5.19, Panel A). Furthermore, if the pensionable age is increased beyond current plans and eventually linked to life expectancy, total employment in 2070 would be 14% higher compared to the scenario with higher elderly employment, resulting in a 12% higher level of GDP in 2070 (Panel A). The combined effect of higher elderly employment and longer working lives would significantly alleviate fiscal burdens, with the structural primary revenue required to stabilise debt decreasing by 7.8 percentage points of potential GDP by 2070 compared to the no-reform baseline scenario (Panel B).

To increase elderly employment and extend working lives, fundamental labour market reforms are required. Extending the careers of older individuals can be achieved through: i) reducing the significance of seniority in determining wages; ii) phasing out the right of companies to set a (mandatory) retirement age below the pension eligibility age; iii) raising the pension eligibility age beyond 65, the current target by 2033; and iv) abolishing the gap between the contribution age and pensionable age. These reforms would not only boost overall employment, but also enhance pension income for the elderly, lowering their relatively high poverty rate.

Korea, together with Japan, is unique in allowing firms to have the authority to determine a mandatory retirement age, which may be lower than the legal pension age (OECD, 2024a). The process of establishing these mandatory retirement policies varies, with some employers unilaterally deciding, while others engage in collective bargaining. These policies automatically terminate the employment contract of any worker reaching a specified age limit. In 2013, the law was amended to prohibit employers from setting the retirement below the age of 60. Beyond the formal mandatory retirement, it is common for employers to encourage older employees to voluntarily leave their job before reaching the mandatory retirement age through a mutual agreement known as honorary retirement, often accompanied by substantial compensation.

The mandatory retirement age and honorary retirement practices lead many workers in Korea to exit their main job early. The average retirement age from the main career was 52.7 in 2023 (54.8 for men and 50.9 for women) for respondents aged 55 to 79, significantly lower than their desired retirement age (Figure 5.20, Panel A). After early retirement from their main job, around one-third were not employed again. The remaining two thirds found new employment, mostly poor quality, insecure and low-paid jobs with limited pension contributions (FKI, 2023). Due to short contributory histories and relatively low replacement rates, average pensions are below the poverty line (OECD, 2022a). Although individuals tend to work until very old ages in Korea, the total disposable income of the elderly relative to the population as a whole is much lower than in other OECD countries, leading to relatively high poverty rates (Panel B).

The main reason why employers force or encourage early retirement is the seniority-based wage system, in which wages automatically increase based on seniority. While the significance of seniority in wage-setting has declined in many OECD countries over time, Korea continues to rely predominantly on seniority-based wage-setting practices, with the impact of seniority on wages being the highest among OECD countries (Figure 5.21). Seniority-based wages render older workers less appealing to firms when their productivity falls below the corresponding seniority-based wage. According to a survey of 300 companies of various sizes, the most frequently cited challenge in managing middle-aged and older employees was “high labour costs”, accounting for 48% of responses. This was followed by concerns about the “burden of new recruitment” (26%) and the “increase in low performers” (24%) (Korea Chamber of Commerce and Industry, 2023). Also, 56% of respondents perceived the work ability and productivity of middle-aged and older workers as similar to that of the younger generation. Consequently, due to the seniority-based system, companies face a strong incentive to encourage the departure of middle-aged workers, who receive higher salaries than their productivity warrants, in favour of hiring younger workers with lower wages but comparable productivity. The seniority-based wage system also contributes to low income among youth, given that seniority-based wages encourage lifetime commitment by workers to their firm by setting wages below marginal productivity for younger workers and above it for those with long tenures (OECD, 2022a).

To extend working lives, Korea has primarily utilised wage subsidies for older workers, with the government significantly increasing the subsidies from KRW 22.6 billion in 2022 to KRW 26.8 billion in 2023 and KRW 35 billion in 2024, citing positive employment outcomes. The subsidies are provided to SMEs when they i) re-employ workers who have retired because of the mandatory retirement age, ii) raise the retirement age above 60 (i.e., the mandatory retirement age), or iii) abolish the mandatory retirement age. The wage subsidies for older workers primarily focus on retaining existing employees, rather than creating new job opportunities (KDI, 2016). While subsidies can be helpful, there is a risk of SMEs becoming overly dependent on government support, as discussed in Chapter 3. Rather than the costly subsidies approach, a more fundamnetal solution is abolishing the mandatory retirement age combined with reducing the significance of seniority wage (see below). Upskilling and re-skilling policies are also important to maximise productivity and employability of the elderly workforce (Chapter 3).

Employers should not be allowed to set the mandatory retirement age below the legal pension age. This not only shortens working lives, but also contributes to the relatively high elderly poverty rate, as the contribution-based National Pension Service only begins paying out at age 63. Most OECD countries do not allow firms to set the mandatory retirement age (OECD, 2021d). Among the OECD countries that allow it, Korea and Japan are the only ones where the mandatory retirement age applies to private‑sector workers at 60, while in nine other countries it applies only from age 65 or higher (OECD, 2021d).

Abolishing the mandatory retirement age should be accompanied by reducing the significance of seniority in the wage setting. Abolishing the mandatory retirement age without reforming the seniority-based system will only increase the gap between workers’ wage and labour productivity further, and increase firms’ incentives to encourage honorary retirement. Indeed, following the 2017 reform, which established the mandatory retirement age floor at 60, there has been an increase in the likelihood of early retirement through honorary retirement after controlling for worker and job characteristics (Lee and Cho, 2022). In an effort to reform the seniority-based system, Korea expanded the "wage peak system" in 2013, wherein wages are reduced in exchange for an extension of the retirement age. However, this one-size-fits-all approach would inadvertently foster age discrimination in cases when the reduced wage level fell below the actual productivity of individual senior workers. In 2022, the Supreme Court ruled against an employer introducing the wage peak system for this reason. Korea should promote a flexible wage system based on performance. This entails tying wages to job performance, job content, and skill requirements irrespective of age, as recommended by the 2022 OECD Economic Survey of Korea. This would also enable younger workers to receive higher wages.

The government should also consider increasing the statutory pensionable age. Empirical analysis suggests that the statutory pensionable age influences retirement decisions in Korea (Park, 2018). The pensionable age is currently 63, one of the lowest in the OECD (Figure 5.22, Panel A). The pensionable age is set to gradually increase to 65 by 2033, but this is still low in international comparison. The relatively slow increase of the pensionable age, combined with a rapid rise of life expectancy, has led to the sharp increase in the difference between life expectancy and pensionable age (Panel B). Raising the pension eligibility age further than currently legislated by 2035 and linking it to life expectancy thereafter as in many other OECD countries, including Finland, Denmark and Italy, should be considered. This should be accompanied by abolishing the gap between the contribution age and the pensionable age. Mandatory contributions currently stop at age 60, three years before the pensionable age. Since no mandatory contributions are made during this period, no pension entitlements accrue unless voluntary contributions are made. Such a situation is unique amongst OECD countries (OECD, 2022d), and should be eliminated, ensuring that pension entitlements continue to accrue until at least the statutory retirement age.

Further measures are needed to enhance the financial sustainability of the pension system while improving pension adequacy. In the face of rapidly changing demographics, the National Pension Fund (NPF) would be depleted by 2055 under the existing setup, according to government estimates released in 2023. At the same time, the pension levels are relatively low (Box 5.5). The previous Survey as well as the 2022 OECD Pension Review recommended various strategies to address both challenges. The aforementioned measures to extend working lives are central to achieving a system which is both financially sound and provides adequate pension income. Additional measures include considerably increasing the pension contribution rate, which currently is among the lowest in the OECD, while raising relatively low pension replacement rates in a financially sustainable way (OECD, 2022a; OECD, 2022d). The National Assembly recently failed to reach an agreement on proposals to raise the contribution rate and replacement rates. The government is currently planning broad pension reforms, although details are not yet available. These recommendations should be considered in the context of these impending reforms.

Immigration can help remedy labour shortages, if well managed. According to calculations based on the OECD long-term model, a more than eightfold increase in net immigration inflows by 2040 could enable Korea to maintain employment close to current levels until 2050 (Figure 5.23, Panel A), and contribute to a decline in the dependency ratio compared to a no-reform baseline. Additionally, immigrants can make positive financial contributions over their lifetimes (OECD, 2013). Currently, foreign-born residents in Korea account for only 4% of the population, one of the lowest shares among OECD countries in 2022 (Panel B). The government plans to expand the inflow of foreign workers notably through expanding visa quotas (see below) as well as centralising immigration policies, and strengthening cooperation with local governments, among other measures, as part of comprehensive immigration policies.

To maximise the positive impacts when expanding immigration, certain conditions are required. Immigration policies should promote integration, given that inclusive immigration policies unlock the full advantages of cultural and skills diversity, paving the way for sustained prosperity and development. At the same time, skilled immigration should be expanded, given that it has a bigger positive impact on the economy by boosting both fiscal (with higher wages) and productivity performance, as evidenced by empirical analyses highlighting the significant role of skilled immigration in fostering innovation and patenting activity (OECD, 2013; Bernstein et al., 2022; Mayda, Orefice and Santoni, 2022).

Korea's immigration policies have not fully met the aforementioned conditions, despite improvements. The share of undocumented foreign workers has fallen sharply, from 51% in 2003 to 19.6% in 2022. This decline can be attributed to the introduction of the Employment Permit System (EPS) in 2004, which enhanced transparency in the inflow of low-skilled foreign workers and mandated equal treatment for both migrant workers and Korean nationals in principle (see below). Considerable efforts have been made, such as strengthening guidance and inspection in EPS workplaces, but low-skilled temporary immigrants may still face poorer working conditions (see below). Furthermore, the share of skilled foreign workers in total foreign residents is among the lowest in Korea within the OECD despite recent increases. Korean immigration policies should be improved. For low-skilled immigration, efforts are needed to prevent the deepening of social segregation and eliminate discriminatory practices against low-skilled immigrants. For skilled immigration, the government must proactively remove any barriers hindering the entry of qualified foreign talents and actively work towards attracting them.

The share of immigrants in Korea’s employment has more than doubled over the past decade, mainly driven by temporary low-skilled labour migration (OECD, 2021). This reflects a growing labour shortage in low-skilled jobs in Korea since the 1990s, due to the rising educational attainment of young individuals. The preference for higher-skilled jobs among educated youth has created a vacuum in low-skilled sectors, leading to increased demand for labour from immigrants who are willing to take on such roles as craft jobs, machine operation and assembly. According to a 2023 survey of 1 000 small and medium-sized businesses, 90.6% stated that they hired foreign workers because they were unable to hire domestic workers (KBIZ, 2023).

Temporary low-skilled labour migration has taken place through the EPS, which Korean employers must use to recruit foreign low-skilled workers (Box 5.6). The Foreign Workforce Policy Committee under the Prime Minister's Office annually sets a quota across industries. Most EPS workers receive the E-9 visa (non-professional employment) which allows them to stay temporarily in Korea for an initial period of almost five years, potentially renewable for a second spell of almost five years. Eligible nationalities are other Asian countries with which bilateral agreements have been signed and where wage levels are generally lower than Korea.

While the EPS system has eased immediate labour shortages of low-skilled workers, it has contributed to social segregation. The system allows for the provision of workers at low wages to specific types of firms in certain sectors of the economy which suffer from low productivity and low quality jobs (OECD, 2019d). The EPS quota applies to the industry as a whole. Within individual firms, small enterprises have almost no limit on the number of workers they can employ (Box 5.6). As a result, EPS allows small low-productivity firms to become heavily reliant on employing EPS migrant workers on low wages to fulfil their non-professional labour needs. This has delayed the restructuring of low-productivity marginal enterprises (OECD, 2019d). In manufacturing, the growing influx of EPS foreign workers into businesses with fewer than 300 regular workers has contributed to the widening gap in wages and productivity between SMEs and larger corporations (Jeon, 2018). EPS workers’ job mobility is limited compared to domestic workers’ (see below), limiting their wage bargaining power (OECD, 2019d).

Furthermore, the EPS system has contributed to social segregation. More than 35% of all foreign-born residents live in overcrowded housing, one of the highest rates among OECD countries and the largest gap to native residents in the OECD (Figure 5.24). More than 60% of migrant workers in the agriculture and fishery sectors reside in substandard accommodations such as shipping containers and panel structures (Human Rights Commission, 2022).

Theoretically the EPS system entitles the low-skilled migrant workers to protections, rights, and benefits afforded to Korean workers under national labour laws and regulations. In reality, however, there have been a few exceptions. The Ministry of Employment and Labour directives allow Korean employers to deduct a portion of migrant workers’ wages in exchange for room and board (upon prior consent by workers). Additionally, visa renewal is in principle contingent on continuous employment at the same workplace throughout the EPS period (or for more than one year with the last employer if they changed workplaces for the reasons mentioned in Box 5.5), intensifying the power imbalance and limiting workers' ability to seek better conditions elsewhere. This hierarchical dynamic creates a fertile ground for employers to manipulate working and living conditions to their advantage.

The government is significantly expanding the inflow of foreign workers under the EPS system to address the low-skilled labour shortage. The annual quota was long maintained at 50 000 to 60 000. The government raised it to 110 000 in 2023, and then 160 000 in 2024. This is expected to relieve the immediate labour shortages faced by SMEs, in part caused by fewer entries during the travel restrictions in 2020-21, but complementary measures are needed to avoid exacerbating labour market inequality and social costs.

Firstly, lowering the firm-level cap especially for smaller firms with few exceptions would exert pressure on firms that survive mostly by using temporary foreign workers. This would also align better with the overarching goal of protecting domestic workers, by preventing a race to the bottom in terms of working conditions. Korea is unusual among OECD countries for setting sector-specific quotas with a higher firm-level cap for smaller firms (OECD, 2019d). Canada, for instance, allows up to 20% of low-wage positions in a firm be filled by temporary foreign labour in general, and Ireland allows up to 50% (OECD, 2019d). At the same time, specifying exceptional cases could be considered. Ethnic restaurants, for example, often have unique requirements for migrant workers with specific cultural or language competencies related to the cuisine they specialise in. Canada, for instance, applies higher caps for certain occupations (e.g., food services) or imposes no cap for specific positions (e.g., truly temporary positions with a duration of employment of 120 calendar days).

Secondly, migrants’ strong dependence on their employers needs to be reduced by relaxing the restrictions on changing jobs. Temporary work programmes in OECD countries generally grant free job mobility (OECD, 2019d). This would empower workers to report workplace violations without fear of severe consequences, fostering a safer working environment. It would also help increase worker productivity, given that restricting job changes prevents effective matching. In September 2023, the government decided to further restrict the right to change workplaces to within the regional area (three to four metropolitan municipality jurisdictions per area) where their previous workplace was located, given increasing labour shortages, particularly in rural regions.

The inflow of skilled foreign workers to Korea is significantly lagging behind other OECD countries, both in absolute terms and in relation to the population (Figure 5.25, Panel A) (Box 5.7). The total number of foreigners on permits for highly qualified workers accounts for only 2.6% of total foreign residents (or 12% of foreign nationals holding work visas). Among them, a large share are foreign language teachers (Panel B). Furthermore, skilled migrants do not stay in Korea for a long time. According to a survey, only half of skilled migrants stayed for more than five years (Statistics Korea and Ministry of Justice, 2022). For comparison, in New Zealand the share of skilled migrants entering on a work visa still residing in the country five years after taking up permanent residence is 80% (OECD, 2014a).

Despite the absence of a quota in the case of skilled workers, stringent visa regulations slow down or complicate entry and residence procedures for skilled workers, fostering a perception that Korea may not be genuinely welcoming or interested in retaining their talents. The most efficient way to increase skilled immigration in Korea in the short term is to remove these obstacles.

Foreign students have to go through a complex visa journey to work in Korea after graduation. Most foreign students in tertiary education hold a D-2 visa for a maximum stay of two years (with a possibility of renewal under certain conditions), comparatively shorter than in many other OECD countries. In around half of the OECD countries, international students are typically granted study visas for the entire duration of their academic programme which is usually four years (OECD, 2022b). The current law allows undergraduate (graduate) students on a D-2 visa to work up to 25 hours (35 hours) a week during semester time, with further restrictions if their Korean proficiency is not sufficient (10 hours if their TOPIK level is lower than level 2). This is relatively low when compared to some OECD countries such as Sweden or Estonia, where international students are permitted to work full-time as long as it does not interfere with their study progress (OECD, 2022b). A more significant hurdle for international students in Korea is the restriction on job types. Part-time job options are mostly restricted to basic skill roles like food service or office assistance. For instance, students from English-speaking countries are not allowed to work as English tutors due to these restrictions. This is relatively strict in international comparison. To transition into a career in Korea after completing their studies, these students are required to change their visa status to a D-10 visa, also known as the job-seeker visa, permitting job-seeking activities or paid internships for six months, which can be extended up to two years. Once they secure qualifying employment offers, they must undergo yet another visa change, applying for an E-7 or another relevant work visa. The E-7 visa, specific to a predefined list of professions, is granted for up to three years initially and can be extended under certain conditions, but with shorter durations being the norm. A lack of correspondence between the field of study and the field of employment can be a ground for refusal of the employment visa. This is the case in Germany and France too, but unusual in most OECD countries (OECD, 2019d).

Korea is a relatively attractive destination for tertiary education students (OECD, 2023e), and the number of foreign students in Korea has increased significantly. Korea’s high education standards, and affordable tuition fees, together with the rising popularity of Korean culture across the world, are likely drivers. According to a survey, 41% of foreign students wanted to stay in Korea after graduation (Statistics Korea, 2017). However, less than 5.8% of foreign students found full-time employment after graduation, reflecting significant hurdles to finally get the employment visa for foreign students in Korea. This is low compared to European OECD countries, for example, where three out of four of those who arrived for education purposes and stayed at least five years in the country are in employment (OECD, 2022b).

To maximize the benefits of having international students as a potential source of skilled labour, Korea should streamline visa processes, specifically by expanding the part-time job options. Studying abroad can be financially burdensome, with tuition fees and living expenses accumulating rapidly. Indeed, according to the government’s survey, more than one out of five foreign students reported experiencing financial difficulties (Statistics Korea, 2023b). The limited legal job options offering low wages may incentivise some to work without proper documentation to alleviate this strain. Acknowledging these challenges, the government recently decided to permit internships for international students during university holidays, specifically in their respective fields of study. Further expansion of the range of job options where international students are allowed to work should be considered. The requirement for the correspondence between the field of study and the field of employment for their employment visa should also be reconsidered. Although this is to promote a match between their skills and the job they are hired for, restricting visa opportunities based solely on the direct correlation between formal education and formal job content might limit the economic contributions of highly skilled foreign workers. Some individuals could bring fresh perspectives and diverse skill sets that can benefit companies and the local economy in ways that are not immediately obvious from their degrees. Korea should actively encourage and facilitate longer-term stays and employment for international students. Compared to other migrant groups, international students have distinct advantages in accessing labour migration channels in host countries, given that they are pre-integrated into the host-country society and often have established connections with the local labour market through part-time jobs or internships.

Another example of strict entry regulations can be found in start-up entrepreneur visas (D-8-4, the Technology Startup Visa). The start-up visa allows foreign start-up entrepreneurs to stay in Korea for two years and run their businesses. A foreigner seeking to apply for a D-8-4 visa must have obtained a bachelor's degree or higher and achieve over 80 points from the government’s Overall Assistance for Start-up Immigration System out of the total 448. The point-based system highly favours patent holders and those who won a prize at invention and start-up exhibitions. Furthermore, for each renewal, the entrepreneur must demonstrate business performance such as sales.

The number of those who obtained the start-up visa has been persistently low, despite a growing interest among foreign entrepreneurs over the past decade. Seoul has a relatively good start-up business environment, being selected as the 10th best startup city in the world with an abundance of IT talent and the potential for collaboration with smartphone manufacturers like Samsung (Startup Genome, 2023). Since the introduction of the Startup Immigration Comprehensive Support System (OASIS) programme in 2015, the number of foreigners completing it has steadily increased, reaching 1342 individuals in November 2022 (Figure 5.26). However, the actual number of successful visa recipients was around 40, only 3%. Furthermore, of the about 230 visas issued from 2015 to 2022, only 110 are currently valid, reflecting the difficulties to renew the visa.

Korea should streamline visa requirements for entrepreneurs (D-8-4). Educational criteria should be reconsidered, given that ground-breaking ideas, rather than formal education, can lead to the establishment of unicorn startups. About half of OECD countries have introduced visas for start-up founders in recent years, and most of them, including the French Tech Visa, do not impose human capital requirements on applicants (OECD, 2022c). Most of them assess the innovation and viability of the startup but do not have bureaucratic prerequisites such as intellectual property certificates. In Estonia, for instance, the e-residency programme was launched in 2014 to provide entrepreneurs beyond its borders with access to Estonian digital business services, allowing them to establish and run a company online (OECD, 2019e; Government of Estonia, 2023). The requirement to demonstrate business performance every year for visa renewal can be a burden for foreign entrepreneurs, considering that entrepreneurs often face a lack of revenue in the initial stages compared to other types of businesses.

Obtaining permanent residency (F-5-1 visa) is difficult. Only 9.9% of foreign nationals (excluding short-term stays) do. This is low even compared to Japan's rate of 37% (MOJ, 2023), partly reflecting a stringent income criterion, namely an annual income exceeding twice the national gross national income (GNI) per capita in the previous year. With Korea's per capita GNI standing at approximately KRW 47.2 million, this means that one must earn over KRW 94.4 million (USD 68 thousand) annually to qualify for general permanent residency. Only certain exceptional cases, such as big investors, real estate investors and their spouses or unmarried children, and individuals of special merit, may face lower income criteria or be exempt from the income test. The high income threshold generally poses a considerable hurdle to especially younger workers, given that currently less than 2% (9%) earn at least KRW 79 million per year among Koreans in their 20s (30s) (NABO, 2023a). The eligibility for family members to obtain permanent residency in Korea is also limited, creating challenges for foreigners living in the country. Only spouses and children under 19 qualify for permanent residency, excluding parents, adult children, siblings, and other family members from living in Korea as permanent residents alongside the primary visa holder.

Allowing more foreigners to stay permanently should be considered, for instance by relaxing the income criteria for obtaining permanent residency. Given the substantial language investment required by highly qualified immigrants interested in moving to countries like Korea, immigration may need to be approached from a settlement perspective (Chaloff and Lemaître, 2009). This will also help improve Korea’s attractiveness (see below). In many OECD countries, there are no such strict income criteria. Relaxing regulations on permanent residency for accompanying family members could also be considered.

Korea should streamline the transition from temporary unskilled foreign worker status to skilled foreign worker status. While unskilled workers holding E-9 visa (or under the Employment Permission System) who have worked legally in Korea more than four years can apply for the E-7-4 skilled worker visa under specific conditions, until 2023 it was subject to a low annual limit and only around 0.5% of EPS workers have achieved this. The E-7-4 is a point-based visa which allows workers to stay and bring family for the duration of their employment contract. Many migrant workers under the Employment Permit System already possess higher education. Over 70% of all highly educated immigrants are employed in low or medium-skilled jobs, the highest overqualification gap in the OECD (ISCO Levels 4-9) (Figure 5.27). According to Statistics Korea’s survey on immigrant residency and employment (Statistics Korea, 2023), 30% of resident foreigners hold a university degree, but only about 3% have a visa for skilled workers. This misalignment often results in skilled workers occupying positions that do not align with their qualifications. The government’s plan to ease the EPS-to-E-7-4 visa transition by relaxing requirements, including the mandated work period, is a positive step. Additionally, the current age limit and Korean language proficiency requirement should be reconsidered.

Simply removing visa hurdles is not enough to ensure a sustainable inflow of skilled immigrants. Countries with their own unique language, like Korea, cannot become internationally competitive only by lowering administrative barriers (Chaloff and Lemaître, 2009). Global competition for skilled professionals and international students in higher education is increasing. In addition to traditionally attractive countries like the United States, Canada, and Australia, new competitors have emerged, such as Japan and Germany, actively working to attract and integrate talent (OECD, 2024a).

The OECD indicator of Talent Attractiveness shows that Korea is not among the most attractive destinations for skilled foreign workers (Figure 5.28, Panel A). This is mainly due to the poor quality of opportunities available, family environment and future prospects (Panel B). Addressing these challenges requires a multifaceted approach. Firstly, the subpar quality of opportunities for highly educated workers partly reflects the high overqualification gap mentioned above and strong employment protection (see previous section). Secondly, establishing affordable international schools and housing, providing integration services, and actively supporting spouse employment can significantly enhance the family environment and long-term immigration prospects (Kang, 2018). Korea should put more efforts into improving these conditions. Norway, which also has high housing costs and language barriers, has successfully addressed challenges for foreign skilled workers in some rural regions (e.g., Møre and Romsdal) by establishing affordable international schools, providing integration services, notably language courses, actively supporting spouse employment and housing mediation, contributing to higher retention rates (OECD, 2014b).

Korea should explore strategies to alleviate the language barriers faced by skilled immigrants. The language barrier has been identified as a factor discouraging foreign talents from working and settling in Korea (Shin et al., 2021). Since May 2023, the government has been offering on-site Korean language courses to foreign workers in the shipbuilding industry, predominantly situated in remote areas. The programme allows foreign workers to learn the Korean language, society and culture during their non-working hours at their workplaces. The government should consider expanding this initative to all sectors and promoting on-the-job language programmes customised by employers, given that employers better understand the needed language competency and can, in turn, develop tailored programmes (Box 5.8).

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