Give the Labor Ministry credit. They are trying to reduce the stubbornly high unemployment rate among young Koreans, but the latest round of policies to boost South Korea’s youth labor market is simply baffling in certain respects. The fact that the Labor Ministry says it will create a 116.9 billion won ($105.1 million) fund to pay for it is cause for pause.

Market economics, including economics of the labor market, is predicated on the belief that properly structured incentives will induce individuals and firms to act. In this latest round of policies, it is difficult to find an incentive structure that achieves the primary goal of reducing youth unemployment, which was recorded at 12.3 percent in February for young people aged 15-29 years old.

The latest plans call for the government to provide 3 million won for up to 5,000 young Koreans who are either under the age of 34 from low-income households or find a job through state-run job counseling centers. It is difficult to discern how giving a one-time inducement of 3 million won to a low-income individual leads to job creation by industry. It is also unclear how providing 3 million won to those aged 30-33 helps lower the youth unemployment rate of those aged 15-29.

Nevertheless, a one-time payment of 3 million won may very well encourage more youth to use state-run counseling centers, but to what end? If these counseling centers had employment opportunities desired by young people, then would not these jobs already be filled and the unemployment rate lower? Common sense tells us yes. The ministry rightly admits that creating high-quality jobs and matching the skill sets of job seekers and firms is of great importance. But this one-time inducement of 3 million won is not enough to change the type of employment desired by young people nor does it create the desired jobs necessary to reduce unemployment.

The announced policy also calls for lowering university tuition rates for those young people who postpone graduation to apply for jobs as degree candidates. The link between decreasing tuition rates and job creation is nonexistent. Students will pay less tuition, which is itself an incentive to stay in school longer, if desired jobs are not created in the short term. If anything, companies should be provided incentives to interview and hire only candidates who have finished school. Such an incentive would help students save the money they would otherwise spend to stay in school. It would also encourage university seniors to focus on their coursework, as opposed to neglecting it while they look for employment.

Lastly, the government plans to increase the amount of low- to mid-interest rate personal bank loans that young people can take. This will increase by 50 percent from 8 million won to 12 million won. Yes, young people will be able to increase their debt and consumption, but again, the link between this policy and the reduction of youth unemployment is tenuous to nonexistent.

The latest round of policies put forth by the Labor Ministry to reduce youth unemployment incentivizes students to stay in school longer and take on more debt, while doing little to change the type of employment desired by young people. There are some things to like in this latest round of policies, but in certain respects, it possesses an incentive structure that is illogical at best, and at its worst, may exacerbate the financial and employment burdens of Korea’s young job seekers.

I’m sure the Labor Ministry can find a better use for that 116.9 billion won than for the policies described here. Young people do not need short-term gimmicks and more debt; they need long-term, sustainable job creation by firms.


By Sean O’Malley

Sean O’Malley is director and associate professor of international studies at Dongseo University in Busan. He can be reached at seanmo@dongseo.ac.kr. --Ed.