This is the first in a two part series looking at youth employment in Korea.
The employment rate for Korean youth (aged 15-29) is well below the OECD average (Figure 1), with negative consequences for the young people concerned and the economy. Youth unemployment and inactivity have a long-term scarring effect that reduces employment rates later in life and increases the chance of becoming non-regular workers with low wages, with adverse effects on health and life satisfaction. Young people face many challenges in addition to employment: intense competition to enter good universities in a society that prioritizes education; the high cost of tertiary education, as 77% of students attend private universities; and the lack of affordable housing in the Seoul metropolitan area, where about half of the country’s population lives. An increasing number of young people (the so-called “sampo generation”) have delayed or given up marriage and children, as reflected in the drop in the fertility rate to below one. Raising youth employment is a priority, particularly as Korea faces the most rapid population aging among OECD countries.
The government has focused extensively on youth employment during the past two decades, with numerous financial incentives for firms to hire young people and measures to increase the supply of young workers through income tax exemptions, cash benefits and in-work benefits. Nevertheless, the youth employment rate remains at its 2000 level (Figure 1). It is essential to focus on the underlying causes of low youth employment, notably the mismatch between education and the labor market. The mismatch is driven by the large skill gap between highly-educated youth who compete for credentials to secure high-paying jobs and older workers retiring from jobs that require less human capital. The share of university graduates among young Koreans is the highest among OECD countries (Figure 2), but their employment rate is relatively low even, as around 40% of small and medium-sized enterprises face labor shortages. Dualism in the labor market (between regular and non-regular workers) and the product market (between small and large firms) encourages young people to queue for jobs in large firms and the public sector to avoid low-wage precarious jobs.
Addressing the mismatch problem
Around three-quarters of Korean high school graduates advance to tertiary education (two-year colleges or four-year universities). According to a government survey, more than 80% of teenagers plan to obtain at least a four-year university degree and 90% of parents share that ambition. Korea faces an “education bubble” according to a former education minister. The over-education problem is driven by “credentialism” – a reliance on academic qualifications as the best measure of an individual’s intelligence or ability to perform a particular job. The high share of young people with education has led to “education inflation” – job candidates must obtain higher degrees for positions that formerly had lower requirements. For example, a two-year college degree in cosmetology faces competition from a four-year university (bachelor) degree in cosmetology. Education inflation has undermined the value of work experience and diplomas from all but the most prestigious universities. In 2015, 44.5% of university graduates and 78.5% of post-graduate degree holders reported that they were over-qualified for their job.
Given the large supply of tertiary graduates, their wage was 20% above high school graduates, about half of the OECD average. Employment rates of recent university graduates are relatively low (70% for men and 77% for women in the 25-29 age cohort in 2021). Moreover, in 2017, 18.4% of young people were neither employed, nor engaged in formal education or training (the so-called NEETs). The NEET rate is exceptionally high among college and university graduates; 45% of NEETs in Korea have a tertiary degree compared to 18% in the OECD area. Consequently, the financial return to tertiary education, which takes tuition fees and foregone earnings while in school into account, is relatively low (Figure 3) and even negative for a substantial share of university and college graduates. Tuition costs are relatively high, as the government provides only around 40% of the funding for tertiary institutions, well below the 66% OECD average and four-fifths of students attend private universities, where tuition is 77% higher than in public universities.
Labor market mismatches also hurt those who do find jobs, as half of university graduates are employed in a field unrelated to their studies. High school graduates apply to a university and a department. Credentialism contributes to mismatch by encouraging students to focus on attending the most prestigious university rather than on finding a program that corresponds to their field of interest. Consequently, college and university graduates spend around nine months on average searching for a job. Another cause of the mismatch problem is universities’ lack of responsiveness to changing demand from the business sector. Universities in the Seoul metropolitan area (about half of Korea’s population) face enrolment ceilings. As they have many more applicants than places available, universities have little incentive to improve their performance to attract more students. Although Korea’s labor shortage in the ICT sector is estimated at 0.4 million people, the number of computer science graduates at Seoul National University increased by only 27% over 16 year to 70 graduates in 2020. In contrast, Stanford University increased the number of computer science graduates my more than five-fold over a 10 year period, graduating 745 students in 2020.
Reducing the mismatch problem also requires reforming secondary education. Korea needs to overcome the widely-held belief that the only path to success is a degree from a top university and a regular job at a large corporation or in the public sector. Secondary education should provide a range of skills to boost students’ employability and productivity but has instead become excessively focused on university admission. The emphasis on measurable skills, such as mathematics, Korean and English, comes at the detriment of less measurable skills such as creativity, critical thinking, collaboration and communication (the “4Cs”).
One priority is to expand the role of vocational high schools and enable their graduates to be hired directly from high school, thus avoiding excessive and unnecessary competition to obtain additional educational qualifications. The share of students attending vocational high schools fell from 40% in 1995 to 18% in 2021, well below the 44% OECD average. Indeed, 44% of vocational high school graduates in 2021 enrolled in higher education, while only 29% entered the labor market. The remainder were not in education or employment. One successful innovation was the 2010 introduction of Meister high schools, which follow the German model of combining education and work experience to improve vocational education at the secondary level. Their curriculum is developed jointly with industry representatives, and internships are mandatory. There are now 52 Meister schools and their graduates have achieved employment rates of more than 90% for five consecutive years. In addition, the 2013 Work-Study Dual Program and the 2018 Work First-Study Later scheme have allowed students to combine study with internships. However, these initiatives are relatively small in scale; only 3% of all high school students attend a Meister school or participate in an apprenticeship programme, placing Korea at the bottom of OECD countries.
In sum, young people prioritize university education despite the low financial returns. The competition for top universities, which typically involves study at private education institutions (hagwons), imposes a heavy financial burden on families and pressure on students. In the 2015 OECD PISA study, Korean 15-year-olds had the lowest share reporting high life satisfaction among OECD countries and the second-highest share reporting low satisfaction (Figure 4). A lack of free time – reflecting the longest hours spent studying among OECD countries – contributes to low life satisfaction. However, education reform alone will not resolve the mismatch problem. The report on the first meeting of the Youth Policy Coordination Committee in 2020, chaired by the Prime Minister, stated that “It is difficult to expand youth employment and improve the quality of jobs due to changes in the industrial structure and the dualistic structure of the labor market such as regular jobs versus non-regular jobs and large enterprises versus small firms.”
This article is based on Chapter 3 of the 2022 OECD Economic Survey of Korea, which was prepared by Randall S. Jones.
Randall S. Jones is a Non-Resident Distinguished Fellow at the Korea Economic Institute of America. The views expressed here are the author’s alone.
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