Wednesday, December 18, 2013

High Youth Unemployment? Blame the Parents.

On Monday, December 16th 2013, The Korea Herald published an editorial about the country’s state of youth unemployment.

According to the editorial, although statistical studies seem to show that Korea’s labor market conditions are improving (the country’s overall unemployment rate has decreased by 0.1 percentage point to 2.7 percent), the unemployment rate for those aged from 15 to 29 increased by 0.8 percentage points from a year earlier, hitting 7.5 percent in November.

The total number of young people who are unemployed could very well be higher as official unemployment figures do not count discouraged workers.

Ironically, this increase in the number of unemployed young people is contrasted by the fact that many small and medium-sized enterprises (SMEs) suffer from a chronic shortage of workers.


To be sure, there are certainly structural problems in the Korean economy that has exacerbated Korea’s high level of youth unemployment. One of the main culprits behind it is the supply-demand mismatch in the labor market. In other words, there are far too many young people who are far too highly educated for jobs that do not exist for them.

Case in point, about 33.2 percent of Korea’s youth were college-educated in 1990. In 2008, 83.8 percent of Korea’s youth were college-educated.

Compounding the issue is the increasing rate of the minimum wage, which makes employers less likely to employ young people with little to no experience and prefer those who are older with previous work experience, and unionization that protects older workers from having to compete for their jobs with younger aspirants.

There are certainly things that the government can do to alleviate the youth unemployment rate such as reversing course on its minimum wage policy and making it easier for employers to fire striking workers. Furthermore, the government can try to adopt and tinker with other successful policies such as Germany’s apprenticeship system, which helps to ease young people’s entry into the job market by lowering business’ costs for employing them, while successfully avoiding the currently practiced internship system, which essentially compels younger people to perform menial tasks that usually have little to do with the actual jobs that they are interning for while usually not getting paid in the name of gaining (dubious) experience.

However, those are only attempts at trying to solve the problem’s symptoms rather than its causes.


One of the underlying roots that plague Korean society, not unlike other countries with advanced economies, is that there is a dangerous disconnect between the demand for blue-collar work, the kind of work that does not necessarily require a college degree, and the number of people who are willing to fill these positions.  This is the result of the Korean people’s tendency to demonize such kinds of work.

The fact of the matter is that, as mentioned earlier, SMEs do suffer from a chronic shortage of workers, particularly for blue-collar jobs. Due to the kinds of higher education that people prefer (with a tendency to prefer service-based jobs in chaebol companies) and their avoidance of other skill sets, such as welding or farming, this near nation-wide behavior has resulted in a skill gap; meaning that there are jobs that cannot be filled by Koreans.

It is a self-inflicted injury. In their desire to save face or conform to society’s collectively held image of what a successful person ought to look like, parents either force and/or socialize their children into going to college. And when they do go to college, they usually do so by taking out student loans that these future graduates might not be able to repay when/if they fail to get the jobs that they were promised but turned out did not actually exist. And this is the problem.

This is certainly not to say that it is undesirable to have an educated youth. It is certainly preferable to have an educated population to one that isn’t. However, when the motivation behind the desire to get a college education is in order to be eligible for “better” jobs rather than simply to attain higher education, then there is a problem.

In the field of economics, there is a type of good that is known as a Giffen good. The law of demand states that when the price of a good increases, the demand for the good then correspondingly decreases as people begin to seek other alternatives or substitutes. A Giffen good is a good that defies the law of demand because it is a type of good whose demand continuously increases even when the price of the good continuously increases. Economists have long argued with one another over the question of whether or not Giffen goods actually exist. Though higher education does not meet the exact requirements of a Giffen good, it does appear to be the closest thing to a Giffen good out there in the market.

The existence of a Giffen good can only come through cultural norms. There are, indeed, plenty of alternatives to a typical college education (when it is being used as a diploma machine in order to be used as resumes for jobs). One can pursue a technical education, or as mentioned earlier, seek apprenticeships. Furthermore, considering the fact that most jobs provide on-the-job training to their new employees and the fact that only a small fraction of college graduates ever get to work in a field that is related to their major, and that most college graduates (for one reason or another) cannot seem to find work nowadays, it would appear that a college education is a bane rather than a boon for young people. All of these reasons suggest that, if this were a normal market, the demand for college education ought to fall, and fall drastically. However, there is no visible sign to suggest that that is about to happen any time soon.

In other words, this Giffen good, this non-dissipating demand for higher education, is an aberration.

That parents wish to see their children live better lives than the ones that they had is certainly an understandable sentiment. In fact, it could be argued that not wishing for that would a reprehensible violation of one of the fundamental laws of nature. However, parents, as well as the rest of society, are failing future generations by imposing on them a myth – the myth that a college education guarantees “better” jobs.

As long as this myth remains unchallenged, neither Korea nor any other country will be able to rid itself of the problem of high levels of youth unemployment or the ever-increasing number of discouraged young workers.

I hope they are ready to realize that they put themselves in serious debt to be overqualified for jobs that don't exist.


  1. There are plenty SME jobs in Korea that need young, qualified and college-educated people....not enough for everybody, but snough to make a significant impact on the numbers. However:

    a) In Korea, if you don't work for a 'brand company' (i.e. Chaebol) or a public office, you're a failure

    b) In Korea, If you don't live in Seoul, you're a nobody (and a failure)...many of these jobs are in smaller cities

    Many would simply rather live with mom and dad and get pocket money until they get married (mom and dad footing the bill again) and hopefully start a business (again at the expense of mom and dad)

  2. Also, in Korea, nobody wants to marry a farmer.

    I used to hang out with a young farmer out in the countryside. His family owned several farms and sold a good chunk of land to property developers at premium rates. This guy drove a 2008 mustang, and commuted to Seoul 3 days a week (via train) to study Math at a small university. He loved his village and the countryside and had no wish to live in a big city.

    Unfortunately this made it very difficult for him to find a girlfriend...all the girls wanted coffee shop dates and glitzy Gangnam outings, and there was no way in hell their parents would let them marry a farmer.

    I wonder if he ever found someone.

    1. What you say is true. Like I said, it's part of the myth that people have been fed. It's part of the collectively held beliefs about what a successful person ought to look like. People have bought into this myth, and that is major reason for youth unemployment.

  3. Hey John, I see you are still in the full swing of thinking like an economist. There are a few things I would like to highlight in your reasoning.
    1. Giffen goods : The condition of a Giffen good is that ONLY price can influence demand (a case could be made for the influence of Income ...) The reason people are willing to pay more for education is the perceived notion it will "pay off" aka future earnings. You say of course there is a discrepance between reality and what people believe, which is a truism ...Prices are a direct result of people's believes, and with some luck those prices get tested in the real world, and adaptions are made according to people's changed believe. As long as Koreans are convinced that a higher education pays better than not going through higher education, the price will continue to rise. So education is not a giffen good, it is a reflection of the believe that education increases value, even if corrected for cost of time and all else included.
    2. Minimum wage: I am not convinced that minimum wages decrease employment in the long run, neither am I convinced that minimum wages increase employment in the long run. Minimum wage is not an economic decision, it is an ethical decision made to protect those who do not have the power to barter for themselves.
    3. SME are always in short supply of good labor. It is part of being an SME. SME's are regarded as unstable, and potentially unsound for one future earning stability. People also regard the possibility of promotion inside an SME as too low, especially for those who believe themselves to be more competent than others.

    You might want to consider the notion of Future Earnings, and how it affects people's decision on what they will invest their time in.

    Live better lives? That is not thinking like an economist!!! An economist does not consider what is better or worse, it only looks at value and how people's choices are influenced due to their desire to maximize their utility. Who are you to say what is and what isn't better? For some potatoes are better then rice. For some higher education is better than no education. For some creating opportunities at all cost is better than not creating opportunities for no cost.

    1. You're right that higher education does not meet the exact requirements that are needed to be considered an actual Giffen good. I'm one of those people who is skeptical about the existence of a pure Giffen good. As I said, it seems like it's one of those things that comes close to being one. But as the saying goes, "close but no cigar."

      The minimum wage bothers me but it's not because I think it decreases employment overall. The markets always equilibrates eventually to take any rise in the minimum wage on the macro level. It's what happens in the micro level that bothers me in the sense that I think it hurts the most vulnerable members of societies. As Milton Friedman called them, "marginal workers."

      Projected future earnings was something that I should have mentioned. It probably influences people the most when it comes to deciding to get a college education (if we discount cultural expectations). I will make it a point to incorporate that the next time.

      As for the "better" lives bit, I never said that I knew what was better. Well, when I have my philosopher hat on, then I take certain positions, but I did not in this article precisely because, as you pointed out, an economist (or at least an amateur one in this case) does not make such normative statements. My comment was that parents want better lives for their children, whatever "better" is supposed to mean.

  4. great read. i would agree with a lot of what you have to say. as a korean who lives in america, your statement on how korean parents are and their mindset is so true. Nothing worse than listening to a bunch of parents squabbling/boasting at each other about how great their daughter/son is when they meet. (mostly consisting of talking about which universities they went to or cheobol corporations they work for)

    One thing though, the unemployment rate in Korea still feels artificially low (overall unemployment rate). although i am not 100% sure, the measurement of employment is different between Korea and USA i believe. there may be a case that people that would be categorized as a part time worker in USA is counted as part of full time work force in Korea.

  5. It is understandable that people wouldn't want to be underemployed after all the work and money that was invested, I'm not sure if it's part of the society or people just want the money and work worth, however it's the case, I think people could take the jobs at the towns that is a good option, save and look for possibilities of investmen to grow that money, like foreign trading, a business, buying a house and rent it, etc.

  6. It is understandable that people wouldn't want to be underemployed after all the work and money that was invested, I'm not sure if it's part of the society or people just want the money and work worth, however it's the case, I think people could take the jobs at the towns that is a good option, save and look for possibilities of investmen to grow that money, like foreign trading, a business, buying a house and rent it, etc.