Release of medium-to-long term outlook on respective agenda based
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Why Korea’s Youth Unemployment Rate Rises

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  • Author Kyungsoo Choi
  • Date 2017/12/20
  • Series No. KDI FOCUS No. 88, eng.
  • Language English
SUMMARY □ Korea’s youth unemployment rate has rapidly ascended since 2013 while total unemployment remains little changed. The youth unemployment rate of high school graduates has been maintained at a stable level thanks to the growing number of service jobs. However, a rapidly rising number of college graduates are unemployed due to the slow creation of professional and semi-professional jobs. The government’s youth employment support program has also contributed to the increase, but the extent is minor. To enhance the demand for skilled workers, economic innovation needs to accelerate and excellence in higher education must be achieved.

- The youth (15-29) unemployment rate rapidly ascended from 2013.

- The decline in the employment rate for men aged 25-29 stopped after 2009 while the unemployment rate has soared since 2013.

- Youth employment is driven more by future careers than income.

- The skill level of young Koreans is densely concentrated in the middle, which means that their skill level is high among the bottom but low among the top.

- Advanced economies experienced a severe polarization of jobs in the 1980s, an increase in service jobs from the 1990s with the IT revolution, followed by a decrease in skilled jobs in recent years.

- The impact from the demographic changes to the youth unemployment rate is insignificant as of now, but the population aged 25-29 is expected to rise by 390,000 in 2017-2021.

- The Ministry of Employment and Labor’s Employment Success Package Program partially increases the unemployment rate but with little significance.

- With growing service jobs from 2010, the employment rate and the wages of high school graduates improved.

- To increase service jobs, the gains from technological innovation must lead to a reduction in prices. But, this is only possible when regulations are eased and competition is encouraged.

- The minimum wage system does not directly increase the wages of high school graduates, but it can serve as an institutional tool necessary for the protection of labor conditions.

- The rising youth unemployment rate is driven by the increase in the unemployment rate of college graduates, particularly due to the decrease in semi-professional jobs.

- Korea’s innovation level must be enhanced to increase the number of skilled jobs. To that end, an environment must be created to motivate innovation, business growth dynamism and excellence in education.
KDI VOD Report
While Korea’s total unemployment rate remains stable at around 4%, the youth unemployment rate has rapidly risen from 8% to 10% in 2017.

The surge is driven by the phased changes in labor demand caused by the developments and propagation of information technology.

The first phase was in the 1980s in advanced countries. Technology replaced jobs and the demand for tech-savvy workers grew.

Accordingly, wages became polarized with those in high-skilled positions enjoying higher wages while low-skilled workers saw their incomes diminish together with the number of routine job positions.

The next phase came in the 1990s as technology and innovation made great strides.

Indeed, goods production grew, prices fell and the services consumption ballooned. This, in turn, ramped up the number of low-skilled, low-paid service jobs.

The third and final phase began in the 2000s as the IT revolution neared completion and the demand of highly skilled workers decreased.

These changes are universal across the globe,and in Korea’s case, the changes in the labor demand of each industry has had a significant impact on youth employment.

There has been a massive decline in production workers among Korean youths since the 2000s. Employment in sales and services has recently reversed its trend and taken an upturn.

Specifically, when the employment and unemployment rates are examined by education level, from 2000 to 2009 the employment rates declined at all levels.

In particular, manufacturing positions decreased markedly due to technological innovation, which has dealt a huge blow to job opportunities for male high school graduates.

However, the high school graduates’ unemployment rate has not risen to any notable degree because many have decided to continue their education.

The enrollment rate into higher education increased from 68% in 2000 to 84% in 2008.

From 2010, the number of jobs in sales and services increased along with the wages. High school graduates returned to choosing work rather than education, and the employment rate rebounded.

Meanwhile, the number of professional and semi-professional positions, which are preferred by college graduates, have diminished, and the employment rate of college graduates continues to decline and the unemployment rate rapidly ascends.

Moreover, the number of college graduates who remain unemployed long after graduation has increased since 2013, reflecting the severity of the groups’ employment conditions.

Although Korea’s total unemployment rate has plateaued in recent years, that for the youth population continues to rise. In particular, the unemployment rate for college graduates is expanding due to the sluggish growth in the demand for professionals and semi-professionals.

The government’s Employment Success Package Program has also served to increase the youth unemployment rate, but not to any significant degree.

Professional and semi-professional jobs are created in line with an economy’s level of skill capital stock. As such, innovation must be ramped up and excellence must be secured in education to raise the competitiveness of Korea’s youths.

Furthermore, the minimum wage must be maintained at an adequate level in order to enhance the quality of service jobs whose number is growing.
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