Each year, Stanford Ph.D. candidates specializing in contemporary Asia join APARC as predoctoral fellows to advance their work in a collaborative research environment. This academic year, Ph.D. candidate in Economics Sally Zhang is using her time at APARC to form professional connections with a network of interdisciplinary scholars and finalize her dissertation. In it, she provides the first direct empirical evidence that working household members hide employment income from one another. Using a nationally representative dataset in Indonesia and field survey data collected in Kenya, she shows that workers hide up to 20% of their income from other household members.

In this post, Zhang describes her predoctoral fellowship experience at APARC and discusses her research on intrahousehold allocations in developing countries. APARC's predoctoral fellowship is now accepting applications for the 2023-24 academic year.

Most people do not live alone but rather in households where they can care for one another. Households make many important economic decisions that affect the welfare of their members, such as where to live, what to purchase, and how much to invest in children's nutrition and education. However, not all members of the household benefit equally from its decisions. Indeed, previous literature has found that women and children are more likely to live in poverty than men, even within the same household. So, understanding how households make decisions can help us create policies that reduce poverty and promote gender equality.

In my fieldwork, I learned that household members often do not share information about their income with one another, and many hide income from others in the household. I took an interest in studying this topic because without accurate knowledge of household income, households may be unable to make the best decisions, especially when resources are already limited. For example, if households underinvest in children's human capital due to income hiding, this can lead to worse development outcomes for the children and perpetuate the cycle of poverty. However, not much economic literature has been devoted to this topic.

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In my paper, "Hidden in Plain Sight: Asymmetric Information and Hidden Income within the Household," I provide the first direct empirical evidence that working household members hide employment income from one another. Using a nationally representative dataset in Indonesia and field survey data collected in Kenya, I find that workers hide up to 20% of their income from other household members. Income hiding has real implications for household consumption and child development. Children who grow up in households where income is hidden from wives are more likely to be underweight for their age and less likely to be employed in adulthood.

A novel contribution of my paper is that I develop a unique survey-based method of measuring income hiding. Hidden income, by its nature, is difficult to measure. In my paper, I measure hiding by eliciting the same person's income multiple times, varying who answers the question and whether they answer it privately. For example, I compare how much a husband says he earns to how much his wife says he earns. I also compare how much a husband says he earns in private to how much he says he earns when his wife is around. If reported income differs systematically depending on who is doing the reporting and whether other household members are physically present, this suggests that there may be income hiding in the household (In the paper, I rule out alternative explanations such as measurement error or misreporting to the surveyor driving the results). Similarly, I can use the same methodology to measure hidden consumption, hidden savings, and hidden transfers.

I use two datasets in my paper: a nationally representative survey in Indonesia and a field survey that I conducted in western Kenya. Indonesia and Kenya are both lower-middle-income countries with high labor force participation rates. Most workers in these countries are self-employed or work in informal positions, suggesting that their income is easily hidden from others. For example, observing your spouse's income would be challenging if they are a street vendor or a motorbike taxi driver whose income fluctuates daily. By examining hidden income in both Indonesia and Kenya, I show that hidden income is a prevalent phenomenon in the developing world and that my methodology is useful in different contexts.

In both Indonesia and Kenya, I find that working household members hide employment income from other household members. The average magnitude of hiding is between 9% and 20%. In Indonesia, income hiding is correlated with more household spending on tobacco and more transfers to extended families, and less spending on protein-rich food. This is concerning because most low- and middle-income households in Indonesia do not have adequate protein intake, and inadequate protein is a major cause of child malnutrition. Indeed, I find that income hiding is correlated with worse child nutrition, but only when income is hidden from women. Households with measured income hiding from wives are 16% more likely to have underweight children compared to similar households where income is not hidden from wives. As adults, these children still fare worse than their counterparts who grew up in households without measured hidden income: girls are 22% more likely to be underweight, and boys are 7% less likely to be employed. In contrast, income hidden from men is not correlated with worse child outcomes. Such gender differences suggest that people may hide income for different reasons, and understanding why they hide is important for understanding the welfare impact of hidden income. In my ongoing research, I continue to study the causal mechanisms and consequences of intrahousehold hidden income.

I am honored to be a predoctoral fellow at APARC during the 2022-2023 academic year. With a group of interdisciplinary researchers, the center provides me with a unique opportunity to discuss my research with area experts outside my field. In addition, I had the opportunity to form personal connections with other fellows and learn about their diverse research interests and life experiences. Being located in Encina Hall has also encouraged me to attend events and meet scholars from different institutes across the Freeman Spogli Institute for International Studies, such as young researcher workshops at the Stanford Center on China's Economy and Institutions.

As a sixth-year graduate student, I am primarily focused on completing my dissertation and exploring potential opportunities on the job market. I am deeply grateful for the relationships and opportunities that I have gained through APARC, as they will undoubtedly be invaluable to me in my future professional development.

This article originally appeared in the Korean daily newspaper Munhwa Ilbo on January 2, 2023. It was translated from Korean by Raymond Ha.

In an exclusive interview for the Munhwa Ilbo, Stanford University professors Gi-Wook Shin and Francis Fukuyama had a conversation on a wide range of topics including the war in Ukraine, U.S.-China competition, and North Korea policy.

The world faces a crisis of political leadership as each country pursues its own interests. Fukuyama stressed the importance of robust international institutions, instead of relying solely on great leaders. He pointed to NATO and the U.S.-Korea alliance as examples of institutions that uphold the liberal international order. In terms of the U.S.-China competition, he said without hesitation that “a democracy like Korea…has to make the decision that it is going to be on the side of democracy.” Fukuyama also noted that in the event of an armed confrontation over Taiwan, Korea would almost certainly be pulled in, given the significant U.S. military presence there. He was skeptical about prospects for progress over North Korea, pointing to the long history of failed negotiations and the lack of viable alternatives. “Not every problem has a solution,” he said.

Gi-Wook Shin, who led the interview, observed that the global decline of democracy appears to have hit a turning point, “although it’s too early to say if there will be a rapid recovery…or a more gradual shift.” As for the state of democracy in the United States, he said, “We will have to wait and see what happens in the 2024 presidential election.” Even though Trump’s political influence may be weaker, he observed, “pro-Trump forces are still part of the system.” In terms of Korea’s foreign policy, Shin emphasized that Seoul “should take [the Taiwan] problem much more seriously.” A crisis in the Taiwan Strait “could become the biggest challenge for the Yoon administration’s foreign policy, not North Korea,” and domestic polarization over China policy is one issue that could threaten to “become extremely controversial.”

The interview was held in-person for one hour at Stanford on December 8, 2022, with a follow-up interview held over the phone on December 27.  

[Gi-Wook Shin] Let’s start by looking back on 2022. How would you summarize this year?

[Francis Fukuyama] I think 2022 was a very good year, where we may have bottomed out in this global move away from democracy and toward authoritarian government. The year really started out in February with the Russian invasion of Ukraine, which looked very, very threatening. China was on a roll. It looked like they were beating everybody in terms of COVID policy. Then, by the end of the year, the Russians got completely bogged down. China experienced mass protests, and there were protests also in Iran. In America’s elections on November 8, all the pro-Trump forces failed to make gains and, in fact, lost almost everywhere. I think that maybe we will look back on 2022 as the year when this democratic recession that has been going on for over 15 years finally bottomed out.

[GWS] I agree, although it’s too early to say if there will be a rapid recovery toward democracy or a more gradual shift. In the United States, we will have to wait and see what happens in the 2024 presidential election. Former President Trump may be weaker politically, but pro-Trump forces are still part of the system. As for the Ukraine war, many people thought Russia would win quite easily, but now it looks like they are struggling. It’s a big question, of course, but how do you think the war will be remembered in history?

[FF] I think that it is going to be remembered as one of the biggest strategic mistakes made by a great-power leader in a very long time. I think that the mistake is directly due to the nature of the political system. You remember that Vladimir Putin was sitting at the end of this 25-foot table with his defense minister because he was so afraid of COVID. He was extremely isolated during the whole pandemic, and he had already isolated himself in a political system where he doesn’t face checks and balances. That kind of decision-making system makes you prone to make even bigger mistakes, because you don’t have other people to test your ideas against. He was completely uninformed about the degree to which Ukraine had developed a separate national identity and that the Ukrainian people were willing to fight for it. He didn’t have any idea how incompetent his own army was. If he had been in a more democratic country that required him to share power with other people, I don’t think he could have made that kind of mistake.

[GWS] Putin is struggling, as you said. There are a lot of problems in China, but Xi Jinping secured a third term. Authoritarian leaders elsewhere still hold power. By contrast, I don’t think President Biden has shown powerful leadership at home or globally. I don’t see any strong political leaders in the U.K., France, or Germany either.

[FF] I think that although Xi Jinping may succeed in stabilizing the situation in China with the protests over COVID in the short run, he is in a lot of trouble. He was creating all this social instability with the zero-COVID policy. Now that they’ve started to relax it, I think the number of cases and deaths is going to go up very dramatically, but I don’t think they’ve got much of a choice. I think this has probably damaged the people’s sense of Xi’s authority and legitimacy, and I’m not sure he can recover from that.

The most important thing is the breakdown of the Chinese economic model. For the past decade, the Chinese model has been to pump a huge amount of money into the real estate sector. That model is collapsing. The other big problem is that they don’t have economic growth anymore. Some economists think that they’re actually in a recession, with negative growth. This is like what Japan went through in the 1990s. So much of the Chinese government’s legitimacy has been based on having extremely high growth rates, and that period is over. I don’t see how they get it back, and they certainly won’t by inserting the state into every economic decision and controlling their high-tech sector. Their population is shrinking now. I’m not sure that Xi Jinping, in the longer run, is actually going to look like a very effective leader.

[GWS] But in the short term, say the next three to five years, won’t authoritarian leaders be powerful in comparison? Just as “America First” shows, some say there is a crisis of political leadership among Western democracies, including the United States, the United Kingdom, France, and Germany.

[FF] I think that apart from President Zelenskyy in Ukraine, we don’t see any really inspiring leaders in Germany or France or the United States. On the other hand, the nice thing about democracy is that it’s an institutional system for managing change. Biden has turned 80, and Trump himself is in his upper 70s. The leadership in Congress and the Democratic Party are all elderly, but they’re all about to change. In the next election cycle, there is going to be a whole new generation of people that are up-and-coming. I don’t think you need a charismatic leader with great vision, necessarily, to run any of the countries you mentioned.

[GWS] Another question is if the United States can provide global leadership. When Trump was defeated, there was a strong expectation for the Biden administration to restore global order and to do much better than its predecessor. I’m not sure whether that’s happening.

[FF] Again, I think that’s why you want to have international institutions rather than being dependent simply on leaders. This gives an institutional basis for continuity in policy. There are all of these alliance structures, like NATO. People thought that NATO was obsolete and was going to go away. It has actually proved to be very durable. The United States has security ties with Korea and Japan that also are quite old, but they’re still durable. It’s interesting that the authoritarian countries have not been able to create anything comparable to that set of alliances. There is the Shanghai Cooperation Organization (SCO), but all the Central Asian states don’t want to be part of this China-Russia dominated organization. We can’t just depend on great leadership.

[GWS] To add on to that, I think Korea should proactively participate in upholding and creating an international order that facilitates a resurgence of democracy. Korea has not really played this role before, but with the 10th largest economy in the world, it is now in a position to play a positive role.

[FF] There is a set of values that underpin America’s alliances, both in Asia and Europe. Throughout the whole Cold War, the Soviet Union never actually invaded a Western democracy, but that’s what Russia did. NATO has suddenly become very relevant once more. I think that both in Korea and Japan, there is also recognition of a comparable challenge from an authoritarian China. Unless all democracies work together and show solidarity with one another, they could be picked off by these two authoritarian powers.

[GWS] There is a lot of debate about whether China is going to invade Taiwan or not. I have a two-part question. First, could the situation in Ukraine reduce the possibility of China invading Taiwan? Second, if China still invades nevertheless, what should Korea do? This is a difficult question for Korea. It cannot say no to the United States as a military ally, but at the same time, it cannot antagonize China. I think this is the most difficult question for Korea at the moment.

[FF] This is a difficult question for the United States because it’s not clear that Congress or the American people actually want to go to war with China in order to save Taiwan. I think if you ask them a polling question stated like that, probably a majority would say, “No, we’re not going to send our troops to die.” But I think it’s likely that the United States will get dragged into such a conflict one way or the other. Among other things, the Chinese would probably have to preempt some of the American forces that are in the theater. American military personnel will get killed as the Chinese attack unfolds, and I think there will be a lot of political pressure to help Taiwan.

[GWS] How much can the United States be involved? Some in Korea are skeptical that Washington will step in.

[FF] This is really the problem. During the Cold War, we had a good idea of what a war would like look like if it actually happened. The military planning was very concretely designed against certain types of escalation. With China, we don’t have a clear set of expectations for what escalation would look like. It could just start with a Chinese invasion. It could start with a blockade. It could start with something in the South China Sea. It could actually start on the Korean Peninsula, with North Korea doing something. If it happens, it’s going to be much more devastating than the war in Ukraine. So much of global production comes out of Asia, and there’s a strong incentive not to let things get out of hand. Whether we have the wisdom to do that is not clear. I also think that people’s expectations and opinions will change once the conflict begins. The moment people see cities being bombed, they will change their minds.

[GWS] I also think that a conflict over Taiwan would affect the American people more directly than what is happening in Ukraine. What’s your view on how seriously Korea should be taking this possibility?

[FF] It is likely enough that it is absolutely important for everyone to take it seriously and plan against it. What you want to do is deter China from taking any military action against Taiwan. They’re not going to be deterred unless they see that there’s a response on the other side that is going to raise the cost for them. That’s not going to happen unless people take the scenarios seriously and start thinking about concrete ways that they could help Taiwan or stymie any kind of Chinese attack. I think it is very important for Korea to think this through and think about ways they could support Taiwan and be part of a larger alliance that can push back against China.

[GWS] I keep telling my friends and colleagues in Korea that they should take this problem much more seriously. Taiwan could become the biggest challenge for the Yoon administration’s foreign policy, not North Korea. China policy has become an extremely divisive partisan issue in South Korea, and it could tear the country apart. What advice would you have for President Yoon?

[FF] There’s two things. First is the rhetorical position. Korea should make its position clear in advance that it would oppose Chinese military action and would support the United States, for example. Korea is going to get dragged into this because so much U.S. military equipment is in Korea, and that is going to be moved in closer to the theater. I think making that position clear in advance is important.

The other thing that’s been very clear from the Ukraine war is that democracies are not prepared for an extended conflict. Everybody is running out of ammunition in Europe and the United States is running low on certain types of ammunition. The Ukrainians have used so much of it just in the 10 months they have been fighting. I think that any high-intensity conflict in East Asia is also going to be very costly in terms of supplies. South Korea is in a better position than other countries because it has been preparing for a North Korean attack for decades. Everybody needs to be prepared for an extended conflict. It may not be over in 48 hours.

[GWS] Koreans are quite nervously watching the ongoing escalation of tensions between the United States and China. In the past, the paradigm was “United States for security, China for the economy” (an-mi-gyeong-joong). Now, security and the economy are linked together. The Yoon government is promoting the strengthening of the alliance with the United States, but South Korea faces the fundamental problem of how to position itself as U.S.-China tensions escalate. Do you have any wisdom for Korea?

[FF] I don’t know if it’s wisdom, but I think Korea needs to take a clearer position. Under the previous government, there was a belief that Korea could somehow be halfway between China and the United States. That’s just not a tenable position. The tension between the United States and China has really been driven by China ever since 2013, when Xi Jinping took power. China has become a much more severe dictatorship internally, and it has become much more aggressive externally. You see the influence of the Belt and Road Initiative and the militarization of the South China Sea. In the last 10 or 15 years, China has been picking fights with India, Japan, Korea, and all of Southeast Asia over territorial issues. They built the size of their military much more rapidly than any other great power in that period of time. As a result, the United States and other countries have simply reacted to this. I think that a democracy like Korea cannot pretend that it is somehow in between the United States and China. It has to make the decision that it is going to be on the side of democracy.

[GWS] I agree that an-mi-gyeong-joong is now obsolete, but I think that South Korea must be more sophisticated in its response. As they say, the devil is in the details. On the economy, Seoul can actively work with Washington on areas closely related to security, but it can still partner with Beijing on sectors that are not. There can be a fine-tuned policy.

I now want to ask about North Korea and U.S. policy. I have been saying that the Biden administration policy is one of “strategic neglect,” not the “strategic patience” of the Obama administration. Kim Jong-un keeps testing missiles and provoking, and South Koreans are puzzled by the lack of response from Washington. Why is that? Is it because all the attention is on Ukraine and China?

[FF] Not every problem has a solution, and I don’t think this problem has a solution. You could use diplomacy. You could use military force. You could use deterrence. There are a limited number of possible approaches, and I think none of them are going to work. There has been a long history of negotiation. That has not worked. I think confrontation is not going to work. I think preemption is certainly not going to work. I just don’t think there’s a good solution, so we’ve ended up with trying to ignore the problem by default. Part of the reason North Korea is launching all of these missiles is that they want people to pay attention to them. Ignoring the problem is not much of a solution either, but it’s not as if there is a better solution.

[GWS] I agree with you that for many people in government, North Korea has been a hot potato. You don’t want to touch it because there is no clear solution, and it won’t help your career. But if we just ignore the problem, then five years later it’s going to be worse. What kind of North Korea are we going to face in five or ten years?

[FF] Everybody has been hoping that something would happen internally. It’s fine to think that, but it’s also not taking place. That said, Kim Jong-un is obese and unhealthy. Who knows what might happen?

[GWS] Let’s now turn to domestic politics here in the United States. I think many Americans were relieved by what happened in the midterm elections last month. Trump’s influence was much more limited than what people thought. But he’s still there, and he’s likely to run again. I think he is still a strong candidate for the Republicans.

[FF] He declared his candidacy, but I think that he is declining very rapidly in influence. We have had four elections now where he was playing a major role in the Republican Party. In three of those elections, he really hurt his own party. He can stir up a third of the electorate that loves him, but it’s never enough to win an election, especially in a swing state. I think he’s gotten crazier in recent months. He is doing so many self-destructive things, having dinner with neo-Nazis and repeating all these conspiracy theories. These are things that no rational candidate would do. The Republicans are going to want somebody that can actually beat the Democrats, and I don’t think it’s going to be him.

[GWS] You don’t expect a rematch between Biden and Trump in 2024?

[FF] This gets into a technical issue, but the Republican primaries are mostly winner-take-all primaries. Any candidate that can get 30% of the vote is likely to be nominated. If you have a Republican field that has several people competing, they may split the alternative vote and Trump may end up winning. I think he still has a good chance of being the Republican nominee. If you’re a Democrat, that’s not the worst thing in the world. It is probably easier to run against Trump than a more normal Republican candidate.

[GWS] Two years is still a long time in politics. You said that Trump is likely to be nominated. Would Biden also run again?

[FF] I think that Biden is going to run again. Part of the problem is in the Democratic Party. It’s not clear who the successor would be. There are a lot of potential new-generation politicians, but I don’t think any of them has enough presence and attention that they can clearly take over the mantle to run as the Democratic candidate. If there is a rematch, I think Biden will win.

[GWS] Now to South Korea. Last June, I did some interviews advocating a parliamentary system, and they received good attention. There is still a lot of hesitancy among Koreans, though. I think there are a few reasons. The first is that we need a strong presidential system to deal with North Korea. There’s no stability if the prime minister keeps changing. Second is that it may drive politicians closer to big business (chaebol) because there’s less direct accountability. What would you suggest for South Korea in terms of institutional reform?

[FF] There are several possibilities even short of a parliamentary system. You can coordinate the presidential and parliamentary terms. It’s still the case that the president has a five-year term, but the legislature is on an even-year term. If you want to have strong government, you need a president that has majority support in the legislature. If they get elected simultaneously on a regular basis, you’re more likely to see strong leadership emerge. In a presidential system, the legislature itself is a check against the president. If you don’t have a strong majority in the legislature, you can’t do anything.

[GWS] That is what is happening right now in Korea.

[FF] In a parliamentary system like the British one, if you have a majority in parliament, you can do what you want. I think the presumption that somehow a presidential system is inevitably stronger than a parliamentary system is not historically correct.

[GWS] Is a parliamentary system maybe one solution to political polarization?

[FF] Sometimes a parliamentary system will have that effect, but the kind of plurality voting system that we have in the United States and in Britain tends to promote polarization. To the extent that you make it possible for third parties to run, that’s probably a better system. If you have more parties and it becomes harder to get a majority in the legislature, that forces coalitions and some degree of power sharing.

This essay originally appeared in Korean on November 27 in Sindonga (New East Asia), Korea’s oldest monthly magazine (established 1931), as part of a monthly column, "Shin’s Reflections on Korea." Translated by Raymond Ha. A PDF version of this essay is also available to download. 

Two great waves of change are sweeping across the world. The first is the economic and technological transformation of the Fourth Industrial Revolution. At the same time, declining birth rates and aging populations have triggered social and demographic changes, mostly in developed countries. The global demand for highly skilled labor is rising to due to rapid technological progress, but the working-age population is shrinking. This has created a widening supply-demand imbalance for global talent. Companies and countries are locked in a fierce competition to attract the most talented individuals.

Korea is no exception. It severely lacks the workforce that it needs to successfully navigate the Fourth Industrial Revolution. Moreover, the demographic changes noted above are proceeding at a much faster pace in Korea than in other developed countries. Until now, Korea has focused on attracting low-skilled labor from abroad to address domestic labor shortages. However, Korea must now pivot to attracting high-skilled talent from across the world to safeguard its future. New economic and demographic realities leave no alternative.

Although it faces such formidable challenges, Korea is lagging far behind in the global competition to attract talent. It does not present a welcoming environment for foreign workers. The size of Korea’s economy ranks in the top 15 worldwide, but it ranked 27 out of 134 countries in INSEAD’s 2021 Global Talent Competitiveness Index.[1] Specifically, it falls worryingly short on two elements that are central to talent competitiveness: brain gain and tolerance for immigrants, respectively ranking at 45 and 65.

If Korea is to overcome its current demographic crisis and find a new engine of economic growth amidst the Fourth Industrial Revolution, it is vital to formulate policies and strategies to attract and utilize highly skilled talent from abroad. To be sure, the government has recognized this problem for many years. The Presidential Committee on Aging Society and Population Policy was formed in 2005, and the Yoon Suk-Yeol administration is preparing to create a new agency to coordinate and direct immigration policy.[2] Nonetheless, government policies still fall short in many respects. Countries with a long history of immigration, such as the United States and Australia, are taking proactive steps to attract global talent. The same holds true of countries that have key historical and social similarities with Korea, including Japan and Germany. What can Korea learn from their experiences?

The Front Lines of a Global Talent War

The 21st century has given rise to a veritable global war to attract talent. The competition is quickly intensifying in cutting-edge technologies, including artificial intelligence, big data, self-driving vehicles, and robotics. Faced with falling birth rates and aging populations, many developed countries are eager to attract global talent. Since demand for such talent is not confined to any region or country, highly skilled individuals are crossing oceans and continents to destinations that provide the most promising opportunities. These individuals consider not only potential wages, but also quality of life and the socioeconomic environment. As their skills are in high demand, they hold all the cards.

Political factors, such as the rise of anti-immigrant sentiment and chauvinistic nationalism, are also having a significant impact on talent flows. Tensions between China and the United States, especially in the areas of technology and information, further complicate the picture. Silicon Valley is at the front lines of this Sino-U.S. competition, as well as the global war to attract talent. There is a sense of urgency in the struggle against China to secure talent in critical technologies like those mentioned above. Trade disputes between Washington and Beijing are only the tip of the iceberg. The real battle is taking place over technology, information, and the highly skilled individuals who work in these sectors. Since the Chinese government is making a concerted effort to gain the upper hand in talent recruitment, the United States is compelled to respond. The Biden administration has been taking legislative steps at home and crafting multilateral initiatives abroad to bolster economic security in key sectors, including semiconductors.[3]

The rise and fall of global companies over the past 30 years highlights the gravity of the global war to attract talent in the technology sector. As of April 2022, the top five companies in the world in terms of market capitalization were Apple, Saudi Aramco, Microsoft, Alphabet (Google’s parent company), and Amazon.[4] With the exception of Saudi Aramco, which has benefited from the recent surge in oil prices, all of them are relatively young IT companies that have amassed enormous wealth by utilizing advanced technologies. These companies heavily rely on talent from countries across the world, including China and India. The battle between the United States and China to attract talent in these fields will only grow more complex in the years to come.

In 1989, which marked the heyday of Japan’s postwar economy, the situation was quite different: 7 of the top 10 and 32 of the top 50 companies in the world were Japanese. Thirty years on, there are no Japanese companies in the top 30. Only Toyota barely clings on to the top 50.[5] While Japanese companies succeeded in creating products for a global market, a rigid organizational culture and the failure to attract overseas talent precipitated a prolonged economic decline. Japan fell behind in the competition to attract global talent because of an inward-looking and exclusionary corporate culture.

Korea should reflect on Japan’s experience, as it is in the midst of an unprecedented perfect storm. It is facing a crisis on three fronts: a plummeting birth rate, an aging population, and a serious brain drain. The first two crises are leading to a shrinking working-age population in the coming decades. In addition, the ongoing brain drain will have grave repercussions for Korea’s future by thinning out its domestic talent pool.

Korea and Japan in an Aging World

In the past, Korea focused on achieving economic growth by controlling population growth. Under Park Chung-Hee, for instance, the South Korean government recognized population policy as an integral element of its plans for economic development. It increased access to contraceptives and launched a nationwide campaign to encourage people to have fewer children.[6] Little thought was given, however, to how a low birth rate and an aging population would affect the economy. In addition, several socioeconomic changes and strains have also further contributed to South Korea’s declining birth rates and population: expensive housing, intense job market competition, and young people choosing to pursue their careers over starting families. However, Japan’s experiences prove cautionary: among advanced countries, Japan was the first to encounter a demographic crisis, and its failure to anticipate and properly respond to this problem was an important factor in its economic slowdown. The country’s “Lost Two Decades” were partly related to sudden changes in its birth rate and population age structure.

Korea’s demographic crisis is unfolding at a much faster pace. Its birth rate is already lower than that of Japan, and its population is aging more quickly. Combined with the severe brain drain, these demographic changes will have far-reaching effects on Korea’s society and economy.

According to Korea’s national statistical office, 260,600 infants were born in 2021.[7] This represents a 4.3% decline compared to the previous year. The annual figure hovered around 600,000 until 2000, but it has fallen to less than half that figure in only two decades. In terms of the total fertility rate (TFR), Korea fell from 0.84 in 2020 to 0.81 in 2021. This statistic represents the average number of children that a woman would have by the end of her reproductive period (age 15 to 49).[8] Simply put, Korea has reached the point where the average woman does not give birth to even one child over her lifetime.

The OECD classifies countries with a TFR of 1.3 or lower as having an extremely low birth rate. Korea entered this category in 2002. Of the 38 OECD member states, Korea has had the lowest birth rate since 2017. The impact of this demographic downturn is already clear, with a noticeable decline in the population of college-age students.[9] Korea’s economy will have an ever-shrinking domestic pool of talent to draw from.

Korea’s population is also aging rapidly. It is projected to become an “extremely aged society” by 2025, when 20.6% of its population will be 65 or older. This figure is expected to reach 40% by the middle of the century. The pace of this change is much faster than it was in Japan, which is well known across the world as an aged society. An Aging World: 2015, a 2016 report by the U.S. Census Bureau, predicts that Korea will become the second-most aged society by 2050, exceeded only by Japan. Korea had been one of the youngest countries, it notes, but will become one of the oldest in the next 50 years.[10]

Korea’s government may have succeeded in its efforts to control population growth, thereby facilitating the “Miracle on the Han River,” but the demographic consequences of those policies now pose a significant obstacle to the country’s sustainable development. The working-age population (age 15 to 64) peaked at 73.2% of the population in 2017. This proportion will plunge to 66.0% by 2030 and 51.1% by 2050. A shrinking labor force will have to shoulder an increasingly heavy burden to support the elderly.

While the government already recognized the gravity of the problem many years ago, its efforts to alleviate the situation have yielded only dismal results. It poured $200 billion into various initiatives aimed at lifting the birth rate over the last 16 years, but the country now has the lowest fertility rate.[11] Attempts to address the aging problem have also been unsuccessful. Although the government is allocating greater resources to deal with the issue, the situation is dire. The relative poverty rate among the elderly reached 40.4% in 2020.[12] In addition, the suicide rate among the elderly was 54.8 per 100,000 in 2017. This is 3.2 times the OECD average. More resources are required to effectively address the problem, which is likely to worsen in the coming decades.

Exit: An Outflow of Talent

These population issues are compounded by the fact that Korea is also experiencing a serious brain drain. This is especially pronounced among highly educated individuals in STEM fields, who will play a vital role in the era of the Fourth Industrial Revolution. In 2016, the Biological Research Information Center, an online forum for biologists in Korea, surveyed 1,005 of its members about this issue. When asked, “If you had to find a job within a year, would you prefer staying in Korea or going abroad?” 47% of respondents indicated that they would look overseas.[13]Furthermore, Korean students who graduate from PhD programs in the United States in STEM fields mostly prefer to find jobs in America instead of returning home. Around half of these individuals remain in the United States after graduation, and the number has grown over time. In 2011, the 5-year stay rate of Koreans who had graduated with a PhD from the United States in science or engineering was 42%.[14] In 2017, it was 57%.[15]

Companies in China and Europe are working hard to recruit Korean talent in advanced technologies. Northvolt, a Swedish battery manufacturer, revealed that it hired personnel from LG Chemical to play a central role on its own R&D team soon after the company was established. The electric vehicle division of China’s Evergrande Group is hiring talent from abroad, including Korea. As the Sino-U.S. competition intensifies, Chinese companies are pulling out all the stops to attract foreign talent in key sectors, including the semiconductor industry. They are offering salaries that are two to four times higher than what Korean companies can provide. There are growing concerns that a brain drain could also lead to an outflow of critical technologies.

According to a 2016 report by the Swiss-based Institute for Management Development, Korea ranked 41st of 63 countries in terms of brain drain and 33rd in terms of brain gain.[16] The countries analyzed in this report can be divided into four groups, depending on whether they rank high or low on the two dimensions of brain drain and brain gain. Countries such as the United States and the United Kingdom have low brain drain and high brain gain, which means that they can draw on a large talent pool. Korea, Japan, and Taiwan are in the opposite situation. They have high brain drain and low brain gain. Even among this group, Korea shows the largest gap between talent inflow and outflow. It finds itself in an especially disadvantageous position as it enters the era of the Fourth Industrial Revolution.

There is no time to lose. If Korea is to find its way out of the perfect storm of a demographic decline compounded by a brain drain, it must be able to attract and rely on foreign talent. It cannot remain a bystander in the intensifying global competition to recruit talent. Until now, Korea has mostly drawn on low-skilled workers from China and Southeast Asian countries. As of 2021, there were 855,000 such migrant workers in Korea. The number of highly skilled migrant workers is less than 10% of this figure. There must be a shift toward attracting foreign talent before it is too late.

This will not be a straightforward task. Immigration is a highly sensitive issue in Korea. Chronic youth unemployment, especially among college graduates, continues to be a serious problem. This is largely due to a mismatch in Korea’s labor market, whereby there is strong preference among young Koreans for skilled, professional jobs, which are on a decline.[17] As youth unemployment is a structural problem that cannot be quickly resolved, the public will be anything but receptive to calls for high-skilled immigration. A wave of anti-immigrant sentiment swept across Europe and reached the shores of the United States, where Trump entered the White House by capitalizing on the anger of white working-class voters. It would be unwise to ignore similar political undercurrents in Korea. Nevertheless, concerns about the possible economic costs of high-skilled immigration fail to appreciate the bigger picture. An influx of foreign talent could contribute to job creation, especially in the skilled sector, thereby alleviating youth unemployment. Moreover, assembling a diverse workforce will stimulate creativity, which plays a pivotal role in the technology sector.[18]

Who Will Make the Next iPhone?

Silicon Valley provides an important data point for informing discussions in Korea about high-skilled immigration. The region’s success would not be possible without the unique history of the United States as a nation of immigrants. However, it is the inclusive culture of Silicon Valley, which recruits diverse talent without regard for ethnicity or nationality, that has enabled its companies to become the driving engine of the global economy. In only 30 years, these individuals have transformed the orchards and vineyards of a small corner of northern California into the global epicenter of the technology industry. Some of them first arrived as students at Stanford or UC Berkeley and then settled down in the Bay Area. Others came in search of jobs from the very beginning. Together, they are competing and collaborating with each other as they push humanity toward new frontiers of technological innovation.

Without such a multinational, multiethnic workforce, Silicon Valley as we know it would not exist. It stands at the cutting edge of technologies that define the Fourth Industrial Revolution, including AI, self-driving vehicles, augmented reality, and IoT. The brightest minds in the world have gathered in Silicon Valley from all corners of the globe. It is no coincidence that engineers and entrepreneurs of Indian, Chinese, and Taiwanese heritage play a leading role in the region’s largest companies. Sundar Pichai (Google), Satya Nadella (Microsoft), and Rajeev Suri (Nokia) all completed their undergraduate studies in India before coming to the United States to build their careers. Jen-Hsun Huang (Nvidia) and Steven Chen (YouTube), both prominent figures in Silicon Valley, emigrated to the United States from Taiwan at a young age. Marc Tessier-Lavigne, the president of Stanford University, came to the United States as a post-doc after completing his PhD in France. It is common to see other faculty members who first came to the United States as students from India or China.

The INVEST Act of 2012, introduced by representatives Adam Schiff and Charles Bass, provides a pathway for foreign students in STEM fields to create companies and obtain permanent residency in the United States. In a March 2012 op-ed, Schiff and Bass observe that “for every foreign-born worker who puts his or her advanced degree to work in this country, more than two jobs for American-born workers are created.” They stress that “our universities are educating the next generation of Steve Jobs’; let’s make sure that they build the next Apple—and the next iPhone—in the United States.”[19] At a congressional hearing in 2008, Bill Gates similarly noted that “Microsoft hires four Americans for supporting roles for every high-skilled H-1B visa holder it hires,” calling on the U.S. government to take proactive measures to attract foreign talent.[20]

Around a quarter of all technology and engineering-related companies created in the United States between 2006 and 2012 were formed by immigrants. In Silicon Valley, the proportion is nearly 50%.[21] The experiences of first-generation immigrant entrepreneurs such as Elon Musk (Tesla, SpaceX), Sergey Brin (Google), Andrew Grove (Intel), and Vinod Khosla (Sun Microsystems) are anything but exceptional. One analysis finds that “immigrant founders from top venture-backed firms have created an estimated average of 150 jobs per company.”[22] Numerous studies demonstrate that high-skilled immigration, instead of taking jobs away from native-born workers, leads to job creation and promotes economic development through technological innovation. Companies such as Google, Apple, and Facebook (Meta) spoke out strongly against the Trump administration’s anti-immigration policies for this very reason.

Making the Most of Global Talent Flows

Many countries have now entered the global competition for talent, some of which bear similarities to Korea. Widely hailed for its success as a “startup nation,” Israel was able to develop its economy by attracting talent from diverse countries. Just like Korea, Israel lacks natural resources and is located in a volatile, conflict-prone region. Despite these disadvantages, Israel succeeded in recruiting foreign talent and attracting multinational companies. After the Soviet Union collapsed, there was a large influx of immigrants into Israel. Many of them were professors, scientists, and engineers, and their skills and experiences played a pivotal role in facilitating Israel’s economic growth.[23]

Germany, which is arguably the originator of ethnic nationalism, also merits a closer look. Before 2000, Germany enforced stringent restrictions on high-skilled immigration for foreign talent. Concerns about its declining birth rate, aging population, and shortage of highly trained STEM personnel prompted the government to revise its immigration policies. It introduced a “Blue Card” system in 2012 that enabled highly qualified foreign workers to seek employment in Germany. In only two years, Germany succeeded in attracting 17,000 individuals through this system from non-EU member states. Unlike the United Kingdom or France, where anti-immigrant sentiment remains prevalent, Germany is poised to further expand high-skilled immigration. This will bring economic benefits that will cement the country’s role as a pillar of the EU.

Japan has also transformed its policies to overcome its demographic malaise. While it previously focused on low-skilled immigration for “3D” occupations, just as Korea has, Japan has now set its sights on attracting foreign talent.[24] One of the major elements of Abenomics was attracting foreign talent. The government announced a plan to host 300,000 foreign students. It provided tailored assistance at every step of the way, from admissions to graduation and job preparation. In particular, foreign students who sought to find employment in Japan after graduation were offered career counseling and employment assistance. Visa regulations were amended to allow such students to stay in Japan for a year while seeking employment. There has already been a change in atmosphere among Japanese businesses. In a survey of 732 Japanese companies in December 2018, 57.2% indicated that they had already hired (or planned to hire) a foreign worker with a college degree.[25]

China has also thrown its hat in the ring. Hao Zhen, chief consultant for Zhaopin, a popular Chinese job search website, noted that “China desperately needs highly skilled workers in AI and other sectors, but it does not have an education system that is capable of creating such a workforce.” This is “why major Chinese IT companies such as Baidu and Alibaba are seeking to recruit foreign talent,” Hao added.[26] China is taking steps to promote high-skilled immigration by relaxing regulations for employment visas and permanent residence. These policies were initiated by the central government, but in 2016 these measures were also extended to immigration policies at the provincial level. Furthermore, the Chinese government also introduced a policy to provide permanent residence to foreigners who start a company in Zhongguancun, also known as China’s Silicon Valley, provided that they meet certain criteria.

Time to Tear Down the Walls

A truly global competition is underway to attract highly skilled workers, and it is past time for Korea to join the fray. This is matter of survival for Korea, given its demographic crises and brain drain. There is a pressing need to form a public consensus in Korea on high-skilled immigration.

Any number of policy proposals could help attract foreign talent. One example that could be implemented with relative ease in Korea is to draw foreign students into the labor market. Although the number of foreign students has surpassed 100,000, hosting foreign students is still primarily seen as a means of compensating for declining enrollment numbers at home. These students have the potential to make valuable contributions to Korea’s society and economy, but as some have noted, they are not always as skilled or qualified as their Korean counterparts. Moreover, the industries they seek to enter are not necessarily the ones where Korea needs foreign talent. This could be remedied by establishing a comprehensive system to nurture and train foreign students, starting from the admissions process. This can help ensure that foreign students play an essential role in Korea’s economy, especially in sectors that face critical labor shortages. Creating successful pathways to employment for foreign students will help attract even more students down the line.

The United States, the United Kingdom, Australia, Canada, and now Japan have already taken similar steps. In Japan, around 30,000 foreign students found jobs in 2019 after graduating. Assuming that around a quarter of the 300,000 foreign students in Japan graduated after full-time enrollment, the employment rate is roughly 40%. The goal is to reach 50% employment for foreign-born graduates, and the current success rate is already playing an important role in attracting more talented students from abroad. Korea should also put in place the institutions to enable this virtuous cycle and use global talent flows to its advantage.

Drawing highly skilled foreign workers into Korea’s economy will not only strengthen the overall talent pool, but also stimulate creative thinking and enhance productivity by raising cultural diversity.[27] In an industrial economy, it was vital to have a homogeneous and cohesive workforce that could quickly and efficiently achieve a given objective. We now live in an economy where creativity and innovation are the order of the day. There is an emphasis on the power of creative destruction. Korea remains one of the most homogeneous societies in the world, and Koreans have traditionally placed a high value on ethnic and cultural unity. Increasing diversity is an urgent and daunting challenge. An influx of global talent could help revitalize Korea’s economy and stimulate technological innovation. The recent surge of interest in Korean culture across the world could provide a crucial window of opportunity to attract foreign talent.[28]

In this vein, it is timely that the Yoon administration is preparing to establish a new agency to handle immigration policy. However, it will not be enough to revise the Immigration Act or pass laws to create new institutions. There must be a profound social and cultural transformation. In particular, Koreans must tear down the walls of their exclusionary “super-networks,” which are often built around common alma maters, shared regional backgrounds, and family ties. We must move beyond the emphasis on purity and homogeneity. Only then can Korea foster an open, inclusive, and tolerant culture where individuals of diverse backgrounds can freely come together and strive for new heights of innovation.

Two thousand years ago, all roads led to Rome. When in Rome, as the saying goes, people had to “do as the Romans do.” We now live in a world of complex global talent flows, where highly skilled individuals around the world cross oceans and continents to seek the most promising opportunities. If Koreans insist that foreigners “do as the Koreans do,” they will simply look elsewhere.

[1] Bruno Lanvin and Felipe Monteiro, eds., The Global Talent Competitiveness Index 2021: Talent Competitiveness in Times of COVID (Fontainebleau, France: INSEAD, 2021), https://www.insead.edu/sites/default/files/assets/dept/fr/gtci/GTCI-2021-Report.pdf. The full breakdown of Korea’s scores is on p. 146.

[2] Lee Hyo-Jin, “Gov’t Prepares to Set Up Migrant Policy Agency,” Korea Times, November 9, 2022, https://www.koreatimes.co.kr/www/nation/2022/11/177_339429.html.

[3] Gi-Wook Shin, “Walking a Tightrope,” Shorenstein APARC, November 16, 2022, https://aparc.fsi.stanford.edu/news/walking-tightrope.

[4] “The 100 Largest Companies in the World by Market Capitalization in 2022,” Statista, May 2022, accessed November 30, 2022, https://www.statista.com/statistics/263264/top-companies-in-the-world-by-market-capitalization/.

[5] “100 Largest Companies in the World,” Statista.

[6] Wie Young, “Korea’s Population Policy, Past and Present” [in Korean], Quarterly Journal of the National Archives of Korea 16 (2011): 72–74, https://www.archives.go.kr/archivesdata/upFile/palgan/1320392249078.pdf.

[7] Unless noted otherwise, all population statistics in this section are from KOSIS (Korean Statistical Information Service), Korea’s national statistical office, https://kosis.kr/index/index.do.

[8] The full definition of TFR given by the World Health Organization is “the average number of children a hypothetical cohort of women would have at the end of their reproductive period if they were subject during their whole lives to the fertility rates of a given period and if they were not subject to mortality.” See “Total Fertility Rate (per Woman),” WHO, https://www.who.int/data/gho/indicator-metadata-registry/imr-details/123.

[9] Children who were born in 2002, when Korea’s TFR first fell below 1.3, would have entered college in 2020.

[10] Wan He, Daniel Goodkind, and Paul Kowal, An Aging World: 2015 (Washington, D.C.: U.S. Government Publishing Office, 2016), https://www.census.gov/content/dam/Census/library/publications/2016/demo/p95-16-1.pdf.

[11] Paula Hancocks, “South Korea Spent $200 Billion, but It Can’t Pay People Enough to Have a Baby,” CNN, December 4, 2022, https://www.cnn.com/2022/12/03/asia/south-korea-worlds-lowest-fertility-rate-intl-hnk-dst/index.html.

[12] This is defined as the proportion of households among the elderly population (65 or over) whose disposable income falls below the poverty line. The poverty line is defined as 50% of the median household disposable income for the entire population. See also “Relative Poverty Rate of Elderly Is Highest Among OECD Member Countries,” Dong-A Ilbo, April 7, 2022, https://www.donga.com/en/article/all/20220407/3299509/1.

[13] Lee Kang-Soo and Park Ji-Min, “A Survey Regarding the Brain Drain among STEM Personnel” [in Korean], Biological Research Information Center, July 12, 2016, https://www.ibric.org/myboard/print.php?Board=report&id=2534.

[14] The 5-year stay rate counts foreign students who remain in the United States for five years after their PhD is awarded. This represents an increase from 10 years prior, when the stay rate was 22%. See “Stay Rates of Foreign Doctorate Recipients,” Oak Ridge Institute for Science and Education, https://orise.orau.gov/stem/workforce-studies/stay-rates-of-foreign-doctorate-recipients.html.

[15] “Survey of Doctorate Recipients: Survey Year 2017,” National Center for Science and Engineering Statistics, National Science Foundation, 2017, https://ncsesdata.nsf.gov/doctoratework/2017/.

[16] The 2016 IMD World Talent Report (Lausanne, Switzerland: Institute for Management Development, 2016), https://www.imd.org/contentassets/5665db95f401437a802c0d86aaa2dfb1/com_november_2016.pdf.

[17] Kyungsoo Choi, “Why Korea’s Youth Unemployment Rate Rises,” KDI Focus 88 (2017): 4. https://doi.org/10.22740/kdi.focus.e.2017.88.

[18] See Gi-Wook Shin, “Beyond Representation: How Diversity Can Unleash Korea’s Innovation,” Shorenstein APARC, June 30, 2022, https://aparc.fsi.stanford.edu/news/beyond-representation-how-diversity-can-unleash-korea%E2%80%99s-innovation.

[19] Adam Schiff and Charlie Bass, “Winning the Global War for Talent,” Glendale News-Press, March 10, 2012, https://www.latimes.com/socal/glendale-news-press/news/tn-gnp-xpm-2012-03-10-tn-pas-0311-congressman-adam-schiff-and-congressman-charlie-basson-winning-the-global-war-for-talent-story.html.

[20] Timothy B. Lee, “Gates to Congress: Microsoft Needs More H-1B Visas,” Ars Technica, March 13, 2008, https://arstechnica.com/tech-policy/2008/03/gates-to-congress-microsoft-needs-more-h1-b-visas/.

[21] Sarah McBride, “One Quarter of U.S. Tech Start-Ups Founded by an Immigrant: Study,” Reuters, October 2, 2012, http://reut.rs/Wduege.

[22] Jason Wiens, Chris Jackson, and Emily Fetsch, “Immigrant Entrepreneurs: A Path to U.S. Economic Growth,” Ewing Marion Kauffman Foundation, January 21, 2015, https://www.kauffman.org/resources/entrepreneurship-policy-digest/immigrant-entrepreneurs-a-path-to-us-economic-growth/.

[23] Shin, “Beyond Representation.”

[24] 3D jobs are those that are dirty, dangerous, and demeaning (or demanding/difficult). 

[25] Yuta Koyanagi, “More Japanese Companies Hire Talent from Overseas Universities,” Nikkei Asia, January 30, 2019, https://asia.nikkei.com/Business/Business-trends/More-Japanese-companies-hire-talent-from-overseas-universities.

[26] Kim Dong-Yoon, “Baidu’s Li Yanhong to Silicon Valley Developers: If You Don’t Like Trump, Come to China” [in Korean], Korea Economic Daily, November 20, 2016, https://www.hankyung.com/international/article/2016112020801.

[27] Shin, “Beyond Representation.”

[28] See Gi-Wook Shin, “Will Hallyu Swell to a Tidal Wave? Korea’s Future as a Cultural Superpower,” Shorenstein APARC, August 1, 2022, https://aparc.fsi.stanford.edu/news/will-hallyu-swell-tidal-wave-koreas-future-cultural-superpower.