COVER STORY • Global Governance at a Crossroads – a Roadmap Towards the G20 Summit in Osaka • 5Interview with Dr. Tae Suk Lee, Vice President & Director, Department of Public Finance & SocialPolicy, Korea Development InstituteAging Populations &Their Economic Impact:
Focus on Asia

By Japan SPOTLIGHT
Declining birth rates and longer lives have created aging populations. This supposed benefit of technology
is now a major concern driving economic and social policies in many countries, and will be thus one of
the core issues at the G20 Summit in Osaka in 2019. Japan SPOTLIGHT interviewed Dr. Tae Suk Lee, adistinguished expert in this area at the Korea Development Institute (KDI), a well-known think-tank inSouth Korea.
(Interviewed on March 4, 2019)

Introduction

Decreasing mortality naturally increases thetime in which individuals participate insociety. Also, the cost of giving birth has
increased gradually and caused fertility todecline. In the medium term, we first haveseen the effects of lower mortality rates, andthen the fertility factor results in a gradualdecline in the labor force sooner or later.

JS: Could you please introduce

yourself and KDI?

Lee: I am vice president and director of theDepartment of Public Finance and Social
Policy at KDI. KDI is a government-fundedpublic think-tank working with thegovernment and many global organizations
such as the World Bank and the AsianDevelopment Bank. My research interests aredemographic change and its impact on longterm public finance and social policy, and inparticular aging issues.
JS: Our Japan SPOTLIGHT May/

Aging Populations & the G20
JS: So you agree that aging

populations is a relevant issue tobe discussed at the G20 or someother international forum?

Dr. Tae Suk Lee

June 2019 issue is going tohighlight the coming G20 Summit in Osaka and oneof the important topics is aging. How do you assess
the aging of populations globally and specifically inAsia?

Lee: I think population aging is part of economic development, as isdocumented in many countries with advanced economies starting inthe 20th century. In both Asia and the rest of the world the fertility
rate and the mortality rate have declined simultaneously, leading to alarger proportion of the population whom we designate as elderly.
“Aging” – or increased life expectancy – can be interpreted as aresult of economic development.
Asia’s mortality rate has declined more rapidly and has resulted in
rapid aging. Economic development and improvements in publichealth and public hygiene have led to improved life expectancy.
22 Japan SPOTLIGHT • May / June 2019

Lee: I think population aging is an ideal topic
for the G20 because it is a universal
phenomenon which every country will experience some time in its
development. The concept of development is related to aging. We
hope this forum can improve awareness of the process of designing
demographic policies from a local perspective, especially in aging
countries like Japan, China, and South Korea. We can learn from theexperience of all aging countries, like those in the European Unionand other advanced countries that have similar policy issues andpolicy problems, and we can discuss which practices are effective ornot, based on their experience. This also offers opportunities forcooperation among countries with different characteristics. With ashrinking population one country may need the capital to invest now,
but another country may save it for future expenditure; one country
may have excess workers and another a labor shortage.

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COVER STORY 5

JS: You remarked that it’s both a social and, at thesame time, economic issue. It also seems to beconnected with technology and social stability as it
relates to inclusiveness in growth. Do you believethat a multidisciplinary approach would be importantin tackling this issue?

Lee: The elderly are expected to account for about half of thepopulation in the near future, so we need a special interdisciplinary
study of the elderly and policy issues. Two key components of theelderly in this regard are happiness and learning ability. Their
psychological and medical status is different from younger people.
Gerontology comprises interdisciplinary research on the many
aspects of aging.
For example, the social work/welfare approach can deal withspecial social welfare programs for the groups with a larger
proportion of medical expenditure and limited work ability. Pedagogy
can deal with lifelong education systems, and anthropology could
provide policy implications for immigration policies. Sociology andpublic administration can be used to improve delivery andimplementation of welfare programs. Of course, economics can beused to pursue the maximization of social welfare, given resource
constraints.
JS: Allowing aged people to stay in the labor force fora long time sounds like a good idea. How doeshappiness and the ability and willingness to work
among the elderly influence government policy as it
relates to costs and expenditures?

Lee: The two main factors to consider are happiness and the ability
to work. Some people can work and feel happiness in working, whileothers have very limited work capacity or cannot work at all. So we
can increase the retirement age due to the fact that the overall
average health quality of the demographic group has improved, but
we have to consider the individual with limited work capacity as well.
It is critical to measure the diversity or heterogeneity of this cohort.
Not all members of the older group have the same capacity or desire
to work. Therefore, we propose a gradual extension of the retirementage, taking into account the pace at which labor-vulnerable groups
are improving their work capacity. We also propose a system ofincentives for labor expansion of workable groups, which could
increase fiscal revenue, reducing the pressure for fiscal spending.

JS: You are proposing that we need to check ormonitor the weakest group, the most elderly group,and to provide them with incentives to remain in thelabor pool. It would seem we may need to have very
detailed statistics in order to respond to each specificneed of the different age groups. Is this where big
data comes into play?

Lee: If there is some kind of regulation or friction to prevent themfrom working further then we need to remove that. But we shouldn’t
require older people to work longer. When we check the individual
data and the individual labor choice, we discover a wide range ofworkability and health status. We need to carefully design ourpolicies and programs to suit the individuals and provide incentives
so that they can choose what is best for them. We can utilize big data
as well as administrative data to design the best assistance toprevent health risks in advance and cure serious diseases. Thisapproach reduces our health costs.

Immigration as a Solution for Aging
Populations
JS: Immigration might be a solution to tackle labor

shortage costs due to aging populations. But
immigration can lead to social instability as we see
now in Europe and elsewhere.

Lee: Immigration is quite a difficult issue. As you said, it can reducelabor shortages but it can create social pressures. South Korea has
several work permit visas, some more successful than others. One
successful example is the F4 program that allows a foreign resident
or citizen with a common Korean heritage to come and work here in
their grandparents’ country for a limited time.
These visa holders illustrate the value of developing the social
skills and competencies that are necessary for the immigrantcommunity to integrate into society. Not every immigrant can have
grandparents from our country, but society should provide theopportunity to build a kind of social solidarity.
Basically immigration promotes the understanding of socialdiversity. To have an “aging friendly society” we need to recognize
and appreciate diversity. In order to utilize the good side ofimmigration, we need to secure the language and culturalhomogeneity of the immigrant. We accomplish this with special
programs to integrate immigrants and the native peoples.
Japan SPOTLIGHT • May / June 201923

COVER STORY 5

JS: You mean education programs?
Lee: Education can be broadly defined, including social campaigns,
coordinated cultural events and programs to share and recognize
cultural diversity. Like the United States, it is desirable to establish a
special tradition of sharing knowledge and ideas with others. But theimportant point to consider in the Asian context is language. Manypeople use English and you and I communicate in English, right?
However, South Korea and Japan are familiar with each other’slanguage and culture. In our case, the Korean and Japanese
languages should form the basis for clear communication, and thencultural backgrounds. Our lifestyle is different from the European orWestern lifestyle, and because of our shared Asian cultural
background, social conflict can be controlled. Eventually we need tomingle with each other.
Asian countries have very limited immigration, because we havequite unique cultures and languages. It is difficult to persuade
foreigners to learn another language and culture. But we need topersuade them to learn and educate each other. Of course we alsoneed to learn their culture and language and must make efforts tocreate an environment for them to adapt.
JS: We need to build a common identity?
Lee: Exactly, this kind of social capital is fundamental if we wish toincrease the labor force with key foreign persons.

Income Inequality, Innovation & Aging
JS: Do you think income inequality is a source ofpopulism or rising political instability? If that’s thecase, can we anticipate more political instability asaging progresses?

Lee: Political stability is a serious concern in an aging society.
Longer life expectancy is a natural consequence of economicdevelopment, which leads to slower economic growth and limits ourresources. In the process of meeting diverse social needs withlimited resources, many political problems will intensify.
There are many opinions on the causes of income inequality. I
think that aging is not the only reason or the main source, but it’s animportant factor. One of the key factors explaining income inequality
is the increasing gaps in productivity among the elderly population
resulting from differences in individual learning ability. As the24 Japan SPOTLIGHT • May / June 2019sophistication in skills diverges in the labor market, inequality will
increase. Examples of other factors include rapid technologicaldevelopment, changes in industrial structure, and concentration of
corporate profits as a result of globalization, and so on.
As income inequality grows, the diversity of societal demands
increases and the fiscal demand to solve them increases. On theother side, an economic slowdown reduces the tax base. The
challenge is how to concentrate our limited resources on the targetedgroups most in need.
JS: The Fourth Industrial Revolution, including IT, AIand robotics, is expected to increase unemployment.
Will this be a serious problem in the future? And how
does it fit into your formula of the elderly and work?

Lee: Technological innovation will likely reduce labor demand andyet it might sustain economic growth and allow people to balance
work and life activities and ultimately their age of retirement. The
challenge of the policy maker is to design a proper tax system. Funds
from those who have work capacity will need to be distributed tothose who require extra help because of their limited work capacity
or other circumstances.
JS: Is there anything you would say in conclusion?
Lee: First, we must support the development of medical technology
and use its achievements socially to improve the quality of mental
and physical life. It is necessary to invest more to improve thequality of care and mental health, especially with regard to dementia
such as Alzheimer’s.
And secondly, we must control our consumption in order tomitigate pollution and energy demands which impact climate andtherefore the quality of life of all ages.

Written with the cooperation of Dan Considine who teaches at Seikei University
and is president of NeTip Inc.