The Peninsula

The Impact of Coronavirus on the Youth Unemployment

By Hyungim Jang

The coronavirus pandemic poses a new challenge for the Moon administration’s ongoing efforts to boost domestic employment, especially for the youth. Some predict that young Koreans will become part of a “lost generation” as a consequence. However, national initiatives under the banner of a “Korean New Deal” are attempting to forestall this looming economic crisis.

Moon Administration’s Past Youth Employment Policies

When Moon Jae-in came into office in May 2017, the youth unemployment rate was at 9.3%. To address this issue, President Moon announced the following plans to bolster youth employment:

1. Increase the employment quota for young people (age 15-34) from 3 to 5% in public institutions, and gradually apply the quota to private companies, depending on their size.
2. Introduce jobseekers’ allowance of KRW300,000 ($249) for three months for the youth to invest in certification, job interviews, and application charges.
3. Support small and medium-sized enterprises (SMEs) when they hire young people through a “2+1” initiative: When a SME hires two young people, the government will provide the salary of a third young worker.

Although the administration did not fulfill its promise to adopt the quota, the youth unemployment rate fell by 1.4% points amid positive shift in the overall employment rate in 2018. The following year, the administration expanded its efforts to support youth employment with a 12.2% increase in the budget for these measures. As a result, the jobseekers’ allowance was increased to KRW500,000 ($415) for six months. The government also promised to expand the unemployment safety net by the end of 2020 to cover all vulnerable communities, which included lower-income workers, young people, and women who discontinued their careers. The administration also sought to legislate new rules requiring the prime minister to renew this commitment to youths every five years.

The Impact of COVID-19 on the Job Market

According to a survey of the top 500 companies in February 2020, more than a quarter of the companies (27.8%) said they planned to reduce new hires in the first half of the year compared to the same period in 2019. As COVID-19 spread rapidly, employment conditions for younger job seekers worsened. The open recruitment season for major corporations in Korea is generally between March and April. Due to the risk of infections, companies showed a preference for hiring experienced workers over new employees who required training. Most of the firms delayed open recruitment by more than a month, further reducing the number of young jobseekers who successfully found employment. In March, Statistics Korea reported that people in their 20s experienced the largest drop in the number of employed people compared to other age cohorts. In addition to this surge in unemployment, the number of people in their 20s who did not participate in the labor force (i.e. not looking for a job) jumped by 109,000 (35.8%) compared to the previous year. This is the largest change since Statistics Korea began compiling data in 2003

As the size of the workforce shrank due to the coronavirus, the recruiting process also shifted drastically. Many firms adopted contactless recruitment. For example, Samsung, the largest conglomerate in Korea, introduced a written test called Global Samsung Aptitude Test (GSAT) and conducted online interviews in May. Other large companies are also considering recruitment and interviews via social media and video. While online interviews received overall positive reviews from both interviewees and interviewers for its convenience and effectiveness, there were considerable frustrations with the online written test.

Applicants who took the GSAT noted that the problems were difficult to solve when administered on a computer. Adding to these challenges, applicants also received more difficult exam questions, adding further hurdles to employment. Even though the youth are tech-savvy, these efforts to transition recruit online still pose a significant barrier.

Government’s Immediate Plans for Youth Employment Post COVID-19

On March 20, the Ministry of Employment and Labor (MOEL) announced a supplementary budget to deal with the economic impact of the coronavirus outbreak. It proposed KRW 435.1 billion ($361 million) in funds to support small and medium-sized firms hiring young people this year.

In addition, at the end of April, the government announced an aid package to tackle a possible economic crisis from the COVID-19 outbreak. Among the funds, an additional KRW 10 trillion ($8.2 billion) was set aside for emergency employment stabilization measures. About KRW 870 billion ($721 million), approximately 8.7% of the total, was specifically allocated to support youth jobseekers. The administration also began specifically discussing ways to create new jobs for young people in the 5th Emergency Economic Council Meeting that was held on April 22. This came in response to concerns that if young jobseekers fail to enter the job market at the right time, they might become a “lost generation,” drifting through part-time jobs like many people who lived through the Asian Financial Crisis in 1997-98.

For example, during the Asian Financial Crisis and the 2008 global financial crisis, people in their 20s experienced the lowest employment rate compared to other age groups. To avoid a similar decline in employment, the government announced that it will work to create additional 550,000 jobs for young adults and low-income earners, which include “remote-jobs (contactless), tech jobs, and positions in SMEs,” in addition to allocating KRW 10 trillion ($8.2 billion) for employment support. Further specificity in what these jobs will entail have not been announced. The breakdown of the positions are as follows:

Source: Ministry of Economy and Finance

A key challenge is the rigidity of the employment market. Korea’s labor market is difficult to restructure because of strong laws protecting permanent employees. This makes companies prioritize reducing new employment when facing an economic recession.

In this environment, temporary employment for public-works projects are not expected to solve the problem in the long term. One Blue House officials described the 550,000 jobs as a short-term project that will end by the end of this year. The problem is that these jobs for the youth need to be managed carefully and differently from job-creation programs for senior citizens. It should be focused on building a sustainable career and vocational training to ensure that young people will adapt to the job market in the future.

Many studies such as Card et al. (2010, 2015) or Kluve (2010) suggested that direct employment programs in the public sector are not effective in the long term especially for the youth, and that they could even have negative effects. Researchers also criticized the fact that these public works programs are concentrated in digital, engineering, construction, and manufacturing sections, which are not sustainable or take into account the specialty of the youth labor force. In an interview with Dong-A Daily, Professor Park Ji-Soon recommended that more diverse jobs for the youth be created in the private sector through investments, instead of focusing in the public sector to simply endure the employment shock.

Korean New Deal policy: The Long Term Potential

Regulatory reform and integrating the youth workforce with the 4th Industrial Revolution may lead to high-quality jobs in the private sector and reduce youth unemployment.

On April 22, Moon administration announced a new economic plan during the 5th emergency economic meeting. President Moon explained that this “Korean New Deal” will not only create new jobs but also prepare the country for the 4th industrial revolution and a post-COVID-19 economy.

The administration started to outline more details of the Korean New Deal during the first and second Meeting of Central Economic Response Headquarters, which was held on April 29 and May 9. The project is mainly comprised of “the Green New Deal” to cope with climate change, and “the Digital New Deal” to redesign existing systems that are based on face-to-face relationships and replace them with digital platforms. In addition, the Korean New Deal incorporates biotechnology research, cultural content generation, and adopting digital management platforms to improve performance in areas such as public transportation. According to President Moon, Korean New Deal is not intended to merely overcome the crisis by creating temporary jobs, but to build a sustainable foundation for a new digital economy.

“Promoting Digital New Deals will make decent job opportunities, especially for young people,” said Kim Yong-beom, the 1st Vice Minister of Economy and Finance. “Since the service industry was hit the hardest by the COVID-19, the number of young job seekers has decreased significantly. I think it will also contribute greatly to complementing those jobs,” he added. Since the administration is working on a large-scale project to promote a digital economy, there are expectations for the increase in demand of the young talents in the technology field. Indeed, there was a rise in stock prices and increased recruitment in the IT industries in spite of the pandemic.

Moreover, immediate job dividends from these initiatives can help young jobseekers. According to research conducted by the Korea Development Institute (KDI), the time it takes for a college graduate to find their first job is negatively correlated with their long-term earning power. In Korea, the wage loss stemming from the delay in landing one’s first job is particularly high. If a college-graduate is held up from finding their first job by one year, their income for the first 10 years of employment will be reduced by 4 to 8% annually compared to peers of the same age who immediately found employment. Therefore, KDI argues that finding jobs at the right time is deeply important.

There are concerns whether these programs will be sustainable in the long-run. The Korean New Deal is set to continue until 2025. Since President Moon leaves his office in 2022, the project can only be maintained as part of a national agenda if the next administration commits KRW 45 trillion ($38 billion) out of the total New Deal budget of KRW 76 trillion ($63 billion).  If COVID-19 is not to have long-term employment consequences for Korea’s youth, the efforts only begin with the Moon administration.

Hyungim Jang is a student at Sungkyunkwan University, pursuing a degree in Economics and Politics.  She was an intern at the Korea Economic Institute of America in the Spring of 2020. The views expressed here are the author’s alone.

Picture from flickr user Mark Hanna