Education Fever and Low Birth Rates in Korea

East Asians, especially South Koreans, appear to be preoccupied with their offspring’s education—most children spend time in expensive private institutes and in cram schools in the evenings and on weekends. At the same time, South Korea currently has the lowest total fertility rate in the world. In this paper, we propose a theory with status externalities in education and endogenous fertility that connects these two facts. The theory is motivated by novel empirical evidence on spillovers in private education spending, which implies that households’ spending on private education is affected by other households’ spending. Using a quantitative heterogeneous-agent model calibrated to Korea, we find that fertility would be 28% higher in the absence of the status externality in education and that childlessness in the poorest quintile would fall from five to less than one percent. We then explore the effects of various government policies. A pro-natal transfer or an education tax can increase fertility and reduce education spending, with heterogeneous effects across the income distribution. The policy mix that maximizes the current generation’s welfare consists of an education tax of 22% and moderate pro-natal transfers. This would raise average fertility by about 11% and decrease education spending by 39%. The result reveals the potential intergenerational conflicts associated with this policy. Although this policy increases the welfare of the current generation, it may not do the same for future generations as it lowers their human capital.

Seongeun Kim is an Associate Professor in the Department of Economics at Sejong University, Seoul, Korea. He is currently a visiting scholar in the Department of Economics at Penn. His research focuses on macroeconomics, and his interests include fertility, inequality, price dynamics, and networks. Kim had served as the editor-in-chief of the Journal of Economic Integration, and as the director of the Center for Economic Integration at Sejong University from 2019 to 2023. He also served as deputy director of the Ministry of Economy and Finance of South Korea from 2007 to 2012. Kim received his B.A. in economics and physics from Seoul National University, and completed his Ph.D. in international economics and finance at Brandeis University in 2017.