KDI - Korea Development Institute - RESEARCH - Research Areas

Summary

Policy Study KOR Structural Transformation and Development Strategies for Local Universities

Local areas in Korea are on the verge of extinction due to the dual challenges of population decline and the magnetism of the capital region. Local industries are collapsing, and students turn a blind eye to local universities that support these industries. From this sense of urgency, this paper examines the current crisis level of Korea's local universities, seeks solutions, and considers the direction they should pursue moving forward.

As per the analysis in this paper, by the year 2040, most private universities outside the capital area are projected to be overlooked by students, leading to a stark prediction that one out of two might naturally disappear due to regional decline. Additionally, the analysis reveals that both students and professors perceive local universities as lagging in competitiveness compared to their counterparts in the capital region, with the faculty members at these institutions also viewed as falling behind. This collective perception demonstrates the crisis local universities are facing.

Analysis utilizing data from the Graduate Occupational Mobility Survey (GOMS) reveals that individuals who completed both their high school and university education in the capital region had a 13.2% higher probability of finding employment within the region, and an 11.3% higher chance of securing employment specifically in Seoul, compared to their peers with different educational paths. Furthermore, capital region high school graduates attending capital region universities were 2.5 times more likely to be employed by large companies in the region, earned a starting salary of 240,000 won higher, and had twice the likelihood of securing full-time positions than those who attended universities outside the capital area. The analysis of factors influencing university choice uncovers that the primary reasons for choosing universities in Seoul at the admission stage are peer influence and the social recognition and reputation of the institutions, rather than employment prospects. In addition, it finds that students with higher grades place significant importance on the suitability of their major.

In a survey of freshmen and sophomores during the 2023 academic year, education quality and reputation emerged as the primary reasons for choosing universities in the capital region. This finding underscores that if these factors are decisive for students selecting universities in the capital area, including Seoul, local universities should place a strategic priority on improving these aspects to attract students.

Drawing from the analysis outcomes, this paper proposes the following structural transformation and development strategies for Korea's local universities: Firstly, the Korean government should enable private universities to strategically and flexibly exit the education market by amending relevant laws, including the Private University Structural Improvement Support Act (draft). Secondly, local universities should commit to enhancing their competitive advantages through deliberate selection and concentration. Thirdly, the effectiveness of existing policies supporting local universities requires thorough reevaluation to inform the design of more sophisticated support measures. Fourthly, the objective understanding of student mobility within and between regions, together with the diagnosis of the causes of their movement, is essential for developing strategies that bolster the synergistic effectiveness of the policy linkages between 'local high schools-local universities-local businesses'. Lastly, to advance local universities, a comprehensive and effective policy for balanced regional development must be clearly articulated.

Summary

Research Monograph KOR Education Innovation and Human Capital Development

The Korean economy and society confront a multitude of challenges, including demographic shifts, slowing growth potential, and declining social mobility. These changes, coupled with the transition into the digital economy and the development of new technologies such as AI are expected to bring about various changes in labor demand. These developments demand a swift transformation of the education system to foster human resources capable of adapting to these changes. However, Korea's education system, the foundation of its workforce, is not yet prepared, making it essential to transform all levels of education, from primary to higher education.

Recognizing that nurturing future human resources through educational innovation is a critical task in this era, this study explores innovations in primary and secondary education and reorganization strategies for higher education to create an innovative human capital ecosystem.
Beginning with an introduction outlining the role and direction of education, this paper discusses the need for educational innovation, referencing the social mobility index. We then examine educational inequality based on parental social background and status in the modern Korean society, investigate how the resulting income inequality has become perceived negatively, and analyze intergenerational social mobility using empirical data and various metrics and methods.

For innovation in elementary and secondary education, we suggest establishing a new 'Scholastic Aptitude Test' system, implementing a transition to tiered and customized teaching approaches to increase educational productivity, and developing a teacher training system to prepare for upcoming environmental changes.

Regarding higher education, we assess the performance of cross-applicants in the labor market after graduation, the efficacy of major-specific education in the labor market, and the roles of government and academic institutions in enhancing university competitiveness. Drawing upon these analyses, we present a transformation strategy for higher education to foster an innovative human capital ecosystem.

In conclusion, we highlight the importance of shifting from a supply-focused to a demand-focused educational paradigm and prioritizing the improvement of educational productivity as key elements of the proposed educational innovation.

Summary

KDI FOCUS Restructuring Higher Education: Toward a Student-led Model

A dwindling school-age population is expected to place many universities under greater financial distress in the coming decades. The Ministry of Education's strategy of assessing universities and coercing poorly performing ones to reduce enrollment has proved inadequate to speed up the restructuring process. A fundamental solution should be found in letting students, rather than the Ministry, lead this process by providing them with more and better information on individual universities and departments. For instance, the average salaries of graduates should be made public. It will facilitate ‘voting by feet’ by students and force universities to focus their efforts on enhancing their core competencies. It has additional advantages in protecting the restructuring process from political interference, enabling a better matching between supply and demand of skills, and promoting the autonomy in higher education.

- There has been a notable downturn in freshman enrollment rates in recent years, corresponding with the decline in the school-age population. If this trend continues, university enrollment figures could halve within the next two decades.

- The current methodology of the Ministry of Education, which compels universities to reduce enrollment quotas based on evaluation results to obtain financial support, remains vulnerable to political influences.

- This current approach has the potential risk of further eroding autonomy and stifling creativity within universities.

- Delegating the decision on the expansion of majors or courses to market forces, rather than to government entities, might prove more effective in addressing issues of labor oversupply or undersupply.

- Faced with declining enrollments, universities have largely opted for a uniform downsizing of department sizes rather than specializing their programs.

- From a supply-side perspective, the most significant hurdle to restructuring is perceived to be resistance from faculty members.

- Income mobility continues to decline, weakening the expectations for upward mobility

- The role and necessity of national universities warrant a fundamental review. Policies concerning university restructuring should be formulated in alignment with the outcomes of this reevaluation.

Summary

Research Monograph KOR Restructuring the Market for Higher Education

The declining number of students has placed many universities under intense pressure for restructuring. The Korean government has implemented a series of programs to facilitate their restructuring, mainly by evaluating their performance, assigning them targets for cuts in enrollment, and offering financial supports. The heavy government involvement, however, has had several drawbacks, including the efficiency principle compromised during the restructuring process, further encroachment on the autonomy of universities, their increased dependency on government, possible distortion in the sectoral supply of manpower, and the decreasing size of individual academic departments in many universities. The sources of the problem can be found, on the supply side, in the resistance from professors toward restructuring and weak governance within universities, and on the demand side, in the under-utilization of information (e.g., on job prospects upon graduation) by students when choosing universities and fields of study. This research monograph analyzes the data from the Education Statistics Service to study the behavior of suppliers and consumers in the market for higher education and proposes three ways to facilitate restructuring: (1) Scaling down the over-sized public universities and dismantling their soft-budget constraint; (2) eliminating the legal ceilings on the number of students in the capital area; and (3) providing better information on individual universities and academic departments. The aim of the latter two is to encourage students to pursue 'voting by feet' and let their selections, not the government's preference, decide which universities will survive and expand and which ones will exit.

Summary

KDI Policy Forum How to Save Local Communities Where Young People Are Leaving?

■ As young people are increasingly concentrated in the Seoul Capital Area (SCA), there is growing interest in policies for supporting young people to settle outside of the SCA; however, a better understanding of young people’s location choice is a prerequisite for policy effectiveness.

- The growing presence of young adults in their late 20s and early 30s in the SCA since 2015 requires empirical investigations of the determinants of their location choice.

■ This study empirically analyzes the residential location choice of young people at two distinctive stages---college education and labor market entry---and finds that the policy intervention at the stage of college education is ineffective, while more visible impact is observed for the policy intervention at the stage of labor market entry.

- When high school graduates in the SCA had to out-migrate to a non-SCA region for higher education due to an exogenous demographic shock, most of them eventually returned to the SCA at the later job-search stage. The deterioration of local economic conditions at graduation also resulted in the increased return moves to the SCA.

- Simulations from a two-stage locational choice model that estimated from micro data show that wage subsidies are more cost-effective than educational subsidies for the settlement of young people in the non-SCA areas.

■ Policies for youth require a nationally-coordinated design, considering the impact on location choice, and policies for local higher education should focus on the original goals, not the supplemental goal of mitigating youth outflows.

- Policies for youth need to be better designed in consideration of regional circumstances so as not to encourage youth migration to the SCA. In particular, policy alternatives targeting subsidies and tax benefits for local youth workers are needed.

- The policy for local higher education needs to prioritize improving the quality of education and research functions and strengthening the tie with the local community.

Summary

Policy Study KOR Study on Location Choice of Young People

The concentration of population toward the Seoul Capital Area (SCA) continues with the ongoing (net) flow of youth into the SCA. While many policies at the local level are introduced to reduce the (net) outflow of young people, those policies’ effectiveness is often questionable. It is crucial for policymakers to understand the key determinants of the location choice of young people and base the choice of a policy mix on the information.

The first chapter, the introduction of the entire study, discusses the necessity of an integrated view for supporting both local areas and young people. The second chapter delves into the interregional migration of youth, focusing on college education and job search. Using plausibly exogenous shocks at each stage, the author finds that the change in migration at college education is mostly temporary at the affected margin. Conversely, a local recession at the time of college graduation significantly increases the “return movement” of youth toward their previous hometown, particularly for those who grew up in the SCA. The third chapter, a joint work of Joseph Han (KDI) and Chamna Yoon (KAIST), estimates a structural model of two-stage location choice from micro-level data. Policy experiments show that subsidizing “local employment” of “local talents” yields the most cost-effective outcomes at both stages among the policy options considered. The supports for local colleges and universities are ineffective for local settlement, although those supports are still valid for other policy goals such as quality education and research. The last chapter concludes with policy implications.

Summary

KDI FOCUS Mismatches in the Labor Market for College Graduates: Focusing on Field-of-Study Choice

□ The intense major-occupation mismatch is attributed to difficulties in adjusting admission quotas within universities, insufficient labor-market information at the department level, and uniform timing of decisions on college majors. To cope with the rapidly changing technological and industrial landscapes, efforts are needed to make meaningful improvements in quota regulation, career education, and university-level curricula.

- The accelerating pace of progress in technology and industry has highlighted the need for change.

- The mismatch between occupation and major in Korea nears 50%, the highest among the surveyed OECD members.

- Total student quotas for universities in the capital-region serve as a significant constraint on the adjustment of quotas for respective majors.

- The gap in income and stability resulting from student quotas for special majors has incurred a herd behavior towards certain majors.

- The expected income of freshmen from four-year universities is similar to the actual average income of graduates, but this masks heterogeneity across college majors.

- Many students struggle with regret over their forced decision between liberal arts and natural sciences in high school and their major in university.

- A partial lift of the enrollment control is needed for capitalregion universities while regular reexaminations are conducted of the appropriateness of student quotas for special majors.

- To reinforce career education, a semester dedicated to careers is needed on a more substantial scale. In addition, more teachers should be assigned, and information on the performance of the labor market at a department level should be provided.

- Policies concerning the timing of college major choices must give proper consideration to both students who decide on their career path early and those who remain undecided.

- Under the principle of autonomy, more encouragement is needed to broaden college major choices.

Summary

Research Monograph KOR A Study on College Regulation and Private Tutoring

This study summarizes the previous discussions on private tutoring, tries to complement the gap in the literature, and suggests a new policy direction.

Following the introduction in Chapter 1, Chapter 2 summarizes the previous discussions on private tutoring. According to the previous studies comparing participation and time spent on private tutoring of students across countries and the analysis of this study, it is clear that hours spent on private tutoring of Korean students tend to be much longer than that of other countries and that, in contrast to most other countries, students with higher academic achievement are more likely to receive private tutoring in Korea. On the other hand, many studies estimating the causal effects of private tutoring investment report a limited effect on improving academic achievement, but a significant impact on the probability of admission to a top university. These results jointly suggest that private tutoring investment in Korea can be regarded socially wasteful in that it only has a significant impact on the ranking competition for college admission, while it does not contribute much to the absolute level of academic achievement of students. As a policy tool to alleviate the costly private tutoring competition, it has often been argued that the government should focus on improving the quality of school education. However, the demand for private tutoring resulting from the ranking competition for college admission may not decrease even if the quality of school education improves. The chapter shows that private tutoring investment did not decrease, but increased, even though the school satisfaction of students improved due to attending a high-quality school.

There is also a view that governmental regulation on college enrollment and tuition intensifies competition for college admission among students, leading to larger investment in private tutoring. Higher education services are supplied by universities and demanded by students at the price level of tuition and at the quantity level of enrollment. Traditionally, the Korean government has strictly regulated the price and quantity of university education, tuition fees and enrollment. In particular, in the Seoul area where most of the prestigious universities in Korea are concentrated, the enrollment of universities has been strictly prohibited since the 1980s. Economically, when prices and quantities are below the equilibrium level, demand exceeds supply and unnecessary competition occurs between consumers. It is possible that the government regulation has prevented universities, particularly very prestigious ones, from increasing their enrollment sufficiently, resulting in increased competition among students.

In order to empirically test the hypothesis that regulation on enrollment and tuition intensifies private tutoring competition among students, there is a need for significant changes in such regulations. Fortunately, around 1995, there has been a significant deregulation on enrollment limit of university, but only in non-capital regions. Exploiting this over-time and cross-region variation in the intensity of regulation as natural experiment, the chapter examines how the deregulation around 1995 affected the likelihood of receiving private tutoring of high school students. Using the data on 4,614 people who graduated high schools over the period of 1982-2005 observed from Education and Social Mobility Survey by the Korea Education Development Institute, this study found that the 1995 deregulation on college enrollment decreased the likelihood of receiving private tutoring of high school students by 9 to 10 percentage points, which amounts to about 1/3 of the sample mean of the outcome variable. In addition, using the deregulation as an instrumental variable for the college admission competition rate in each region, a unit increase in the competition rate was estimated to increase the likelihood of receiving private tutoring in the region by about 5-6 percentage points. In the sample used for the analysis, the average college admission competition rate is about 4:1, so the estimation result suggests that when the competition rate increases from 4:1 to 5:1, the likelihood of receiving private tutoring of high school students tend to increase from 32 percent to 37-38 percent. In order to examine whether the above estimation results indicate a causal effect due to deregulation or merely a correlation, this study also attempted two falsification tests and found evidence supporting the causal interpretation.

The estimation results in Chapter 3 are from analyzing the effects of policy changes in the mid-1990s, and therefore, it is difficult to directly link the results to policy suggestions that are appropriate at this time. In this regard, Chapter 4 examines whether the current level of regulation on enrollment and tuition still causes undersupply of the amount of admissions supplied by university, likely leading to increase in private tutoring investment among students. Specifically, this study theoretically discusses the possibility that universities may try to avoid the regulation by admitting international students who are not subject to the regulation, and empirically examines the plausibility of the theoretical prediction. Analysis of the financial situation and student information of four-year private universities nationwide during 2008-2017 revealed that private universities in Seoul, whose enrollment and tuition are strictly regulated by the government, tend to increase the share of international students when the financial situation deteriorates. On the other hand, for private universities outside the Seoul area where the regulation tends to be less strict, the correlation between the financial situation and the share of international students was not observed. These results support the interpretation that the current level of regulation on enrollment and tuition is binding enough to curb the voluntary admission supply by universities in Korea, thus likely intensifying the competition for admission among Korean students.

Chapter 5 concludes the report and sets out policy directions. It is neither desirable nor possible for the government to curb all private tutoring investments. Rather, the government should focus on identifying and correcting the causes of “rent-seeking” private tutoring. Rent-seeking behavior is motivated by economic rent, and economic rent is formed when supply is limited. The rent-seeking private tutoring, the objective of which is to occupy limited college admission opportunities rather than improving academic achievement or human capital formation of students, occurs because of the limited supply of college admissions, especially those of very prestigious colleges. In this respect, the government should induce colleges, particularly prestigious ones, to increase their enrollment sufficiently.

Summary

Research Monograph KOR Field-of-Study Choice in Higher Education and the Role of Government

This study empirically investigates the roles of various frictions in the field-of-study choice in higher education, and the implications on current educational policies. On the supply side, institutional constraints may distort the required adjustment of educational supply across majors within universities. And, on the demand side, informational frictions on market returns and own comparative advantage may distort students’ application decisions. The current matching mechanism for college admissions which clears the market may cause additional inefficiency.

The empirical investigation yields the following findings: the government control of university-level enrollment quotas in Seoul and the vicinity slows the adjustment of major-specific enrollment quotas within those universities; lifetime earnings significantly differ across majors, and the enrollment quotas for special majors such as health and education play a key role in the differences; the timing of field-of-study decision can alter the field-of-study at graduation; a significant proportion of college freshmen want to change their college and major, mainly due to bad luck in college admissions and partly due to incomplete information on their comparative advantage; and finally, while the expected earnings by college freshmen are close to the actual earnings of past graduates, the accuracy of the prediction is highly heterogeneous by student characteristics.

After reviewing existing educational institutions and policies, this study make suggestions to promote field choice in the direction of improving social welfare.

Summary

Policy Study KOR The Local Economic Impacts of University Campus

This paper studies the role of universities in local development by analyzing 14 cases of establishments and closures of colleges in Korea. To ease concerns over the endogenous determination of campus openings and closures, the Synthetic Control Method was used which constructs the counterfactuals of cities in which campus openings or closures occur.

In regards to the establishment of campuses, the two campus openings for the National Institute of Science and Technology (DGIST and UNIST) generated positive employment effects for the local economies. The effects have been larger in the manufacturing sectors due to the entry of new firms, but the local service sectors have also expanded due to the increased demand. The impact on land prices in general has been limited. These results suggest that the university research, local industrial structure as well as the competence of university must be correlated to generate any spillover effects from campus openings.

For the closure of college campuses, most cities do not experience significant changes in employment or other outcomes. But, two regions where campuses left due to relocation experienced a decrease in service sector employment. These results imply that an exogenous and large population decrease may lead to a significant loss in local employment. Therefore, policy makers should consider measures to ease the negative employment effects from campus closures.

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