This study investigates the problem of rising youth unemployment in Korea, one of the major social problems in the country. The examination shows that it is unlikely that the problem has been caused by excess supply or deficient demand. Rather, the polarization in labor demand combined with non-market factors is at the root of the current problem. Particularly, the long-term effects of initial job placement play a key role in the social problem. Based on the empirical results on the long-term effects, several points of improvement for active labor market programs (ALMPs) for youth are presented.

Chapter 2 shows both the unemployment rate and the NEET rate among aged 15-29 have sharply increased. Particularly, the duration of landing on one’s first job after graduation has notably prolonged.

Chapter 3 delves into the reasons behind worsening job situation for youth with a review on previous literature. The recent youth unemployment issue cannot be explained simply by excess supply or deficient demand. Rather, polarization in labor demand due to technological changes occurring globally and conglomerate-centered economy in Korea may act unfavorably against youth, as combined with non-market factors such as incomplete school-to-work transition and strong employment protection legislatures.

Chapters 4 and 5 estimates the long-term effects of the duration from graduation to landing on one’s first job and the characteristics of the first job. Empirical results indicate that the duration of school-to-work transition does not have significant effects on later labor market outcomes for high school graduates, but does have a long-term negative impact on earnings for college graduates. On the other hand, earnings at the first job can explain future labor market outcome very well, for all education groups. The reasons for the persistent effect of initial earnings, however, may differ across the groups. For high school graduates, no long-term impact of observed characteristics of their first job other than earnings are observed―therefore, initial wage level itself or some unobserved job characteristics related to the wage level have causal effects on later outcomes. For college graduates, on the contrary, initial firm size and contract type matter for later outcomes, showing that the dual labor market structure, which is centered around firm size and contract type, has particularly large influence for this education group.

Chapter 6 provides an overview of the Korean government’s measures to tackle youth unemployment and makes three main suggestions for improvement based on the empirical findings in the previous chapters.

First, active labor market programs (ALMPs) for youth must be designed and implemented based on the fact that the job characteristics in the beginning phase of a career have persistent effects on later labor market outcomes. Second, ALMPs for youth must recognize that youth group is not homogeneous. This research, in particular, points out that the contents of the ALMPs need to be different by the education level of the targeted group. In the case of high school graduates, raising the minimum quality of jobs, such as increasing initial wage and reducing working hours, is important. For college graduates, employment service and start-up support programs will be relatively more effective, and strengthening ‘flexicurity’ in labor market, which allows another try after some failures in the beginning of one’s career, is the fundamental solution. Third, evaluation and feedback system for each youth employment support program needs to be strengthened. To find the most appropriate forms of the ALMPs, a creative and comprehensive approach is needed based on solid understanding of what youth want. At the same time, it is necessary to design a policy experiment and to construct a long-term micro-data.

From the insights found above, a number of areas of improvement can be pointed out for each type of the ALMPs. First, direct job creation program for youth should reduce its scale unless the economy is under a crisis and narrow the scope of beneficiaries down to anti-discrimination in the labor market. As for the hiring incentives currently managed separately by each ministry, it is desirable to unify them into one program or to integrate management after reviewing its effectiveness. Next, employment service for youth should shorten the duration of the program and concentrate on providing customized information and income support conditional on continuing job-seeking activity. Vocational training programs need to clearly set mid- and long-term policy direction and give preferential support for the firms which work as stepping stone through skills accumulation. Lastly, start-up support programs for youth should strengthen the aim of increasing youth employment level, encourage low-income and female more, and provide more opportunities to former employees of small and medium enterprises.

Preface
Executive Summary

Chapter 1 Introduction

Chapter 2 Youth Employment Issues in Statistics
　Section 1 Quantitative Indicators: Unemployment Rate, Employment Rate, NEET Rate
　Section 2 Qualitative Indicators: Firm Size, Employment Stability, Real Wages
　Section 3 Duration of Transition to First Job After Graduation
　Section 4 Conclusion

Chapter 3 Causes of Youth Employment Issues
　Section 1 Supply-Side Factors
　Section 2 Demand-Side Factors
　Section 3 Institutional and Non-Market Factors
　Section 4 Conclusion

Chapter 4 Long-Term Impact of School-to-Work Transition Duration on Labor Market Outcomes
　Section 1 Literature Review
　Section 2 Data
　Section 3 Research Design
　Section 4 Estimation Results
　Section 5 Conclusion

Chapter 5 Long-Term Impact of First Job Characteristics on Labor Market Outcomes
　Section 1 Long-Term Impact of Initial Wage on Labor Market Outcomes
　Section 2 Long-Term Impact of Non-Wage Characteristics of First Job
　Section 3 Conclusion

Chapter 6 Current Youth Employment Policies and Directions for Improvement
　Section 1 Overview of Existing Youth Employment Policies
　Section 2 Policy Recommendations for Improvement

Chapter 7 Conclusion

References
Appendix
ABSTRACT