What’s wrong with youth employment?

By Byun Yang-gyu

In this era of high youth unemployment, there are many young unemployed graduates fruitlessly expanding resources in search of jobs. It is also now known that young people who have experienced long unemployment spells get paid less and are likely to have unstable jobs. This shows why we must pay more attention to Korea’s youth unemployment situation.

The youth unemployment rate through August 2012 has slightly decreased to 7.8 percent compared with 8.0 percent in the previous year. However, the problem is that even with the relatively low unemployment rate many young people still decide to remain economically inactive due to a lack of access to decent jobs. Youth unemployment rate since 2000 hasn't significantly changed.

However, the activity and employment rate of young people aged between 15 and 29 has continued to decrease since 2005 and remain at dismally low levels. The ratio of youth unemployment rate to adult unemployment rate and that of youth employment rate to adult rate have already shown structural changes from the early-mid 2000s. These tell us that youth unemployment issues reflect structural problems in the Korean economy, not the temporary phenomenon induced economic cycle.

This structural problem stems from the phenomenal increase of highly educated youth, not helped by an economy that is not creating substantial numbers of jobs. The percentage of the youthful population has fallen to 23.4 percent in 2011 after reaching 38.4 percent in 1991.

In contrast, college entrance rates continued to soar to 83.8 percent in 2008, a new record; high than the 33.2 percent in 1990. However, with manufacturing sectors is creating very limited number of jobs, whilst the service sector only offers low caliber jobs mainly from wholesale, retail trade, restaurants and hotels. In this sense, we have a serious imbalance between labor supply and demand in the labor market for highly educated young people.

Due to this structural imbalance, job search among young people is getting harder. In fact, 8 out of 10 male college students have taken a leave of absence from their school, and it usually takes six and a half years to graduate. After graduation, they spend one year on average until they find their first jobs but more than half of those newly employed leave their jobs because of unsatisfied working conditions.

The main causes of youth unemployment include structural issues such as supply-demand mismatch in the labor market. What’s even worse is that recent graduates who were college freshmen in 2008 have just started to enter the labor market, which will only aggravate the structural imbalance in the labor market.

Even if the economy gets better and more jobs are created, most of them are likely to go to the middle-aged or experienced job seekers rather than new graduates. In 2013, average youth unemployment rate is expected to remain high between 7 or 8 percent, and significant improvement seems to be in the distant future.

The Korean economy should remove unnecessary regulations especially in the service sectors so that high quality jobs in the service industry such as education, medical, and legal sectors can be created.

Moreover, policies aimed at lowering the excessive employment protection of permanent workers should be implemented in order to vitalize the labor market and create more jobs. Also, the government should reinforce restructuring programs, targeted problem-ridden universities, through information disclosure and school approval certification and drive to weed out low-performing schools by inducing market competition. For example, providing incentives for M&A among universities will improve the program quality and reduce their size which has been inflated.

Since the issue of youth unemployment demonstrates the structural imbalance in the Korean economy, sitting and waiting for the problems to be solved will only increase the burden among the current generation of young people. Therefore, in the interest of assuring fair employment opportunities and social integration, it is time for a grand social compromise, recruiting the young with reduction of labor costs through a temporal freeze of the existing employees.

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