South Korea needs drastic policy changes as youth unemployment reaches a 15-year high. HYUNG-A KIM reports.

The Korea Herald recently reported that 410,000 young people in their 20s were unemployed in South Korea, up from 330,000 in 2013, and a 15-year high.

This deepening societal crisis should come as little surprise to those familiar with changes in the post-1997 Korean labour market. Following the Asian financial crisis of 1997–98, the International Monetary Fund bailout package called for the restructuring of South Korea’s economy on top of work that had been ongoing throughout the 1990s.

Indeed, an entirely new generation of non-regular or contract workers emerged in the pursuit of a more flexible labour market by both the government and family-owned conglomerates—known as chaebol. As a result, young workers have suffered a loss of career prospects and security in employment.

While South Korea’s chaebol have recovered nicely from the crisis, high unemployment or unstable employment have been the outcome for young people, to the extent that they are known in Korean society today as the ‘seven-give-up generation’. The seven give-ups include love, marriage, childbirth, human relations, home ownership, personal dreams and hope.

This phenomenon grew out of the ‘three-give-up generation’, and then the ‘five-give-up generation. Of the seven give-ups, young men in their 20s and 30s, according to a recent survey by the Chung-Ang Ilbo newspaper, have mostly given up on marriage and dreams. Young women in the same age group have chosen to give up childbirth and marriage. Korean workers in general feel that they have been abandoned by their government and corporations.

As elsewhere, participation in employment, education or training is important for South Korea’s youth to establish themselves in the labour market and achieve self-sufficiency. To a large degree, South Korea’s youth unemployment problem is disguised by a relatively low labour force participation rate of only 46 per cent for young people aged 15–29, with only 41.7 per cent actually in employment. South Korea’s overall unemployment figure of 9.9 per cent therefore grossly understates youth unemployment and underemployment.

On average it takes young people 11 months to get their first job. The average service period for first jobs is only 14.6 months. People not in paid employment focus on vocational training and preparation for employment exams (33.2 per cent), or take up child care and housework (19.8 per cent), or simply ‘kill time’ (18.7 per cent), while actual job seeking by those not in paid employment has decreased to 13 per cent.

Postponing the inevitable

The emerging societal problem is obvious and requires urgent government action. The low labour force participation rate, combined with a 10 per cent youth unemployment rate, sees over 58 per cent of South Korea’s population aged 15–29 without paid employment. To postpone the inevitable, many South Korean students simply stay on at school because they can’t find a job. Moreover, the fact that all males are required to undergo 21 or 24 months of military service simply adds to the dire job situation facing Korea’s youth.

In this context, many well-educated young Koreans compete for a limited number of prestigious full-time jobs, rather than apply for less desirable employment options. Many choose to remain out of work in the hope of securing a better job.

And yet, many small and medium-sized enterprises (SMEs) suffer from chronic shortages of manpower, as most college students shun low-paying and physically challenging work. SMEs are forced to compete to hire more immigrant workers, whose numbers and period of stay are limited by government regulations. Under current labour market conditions, the job mismatch is unlikely to be resolved soon.

President Park Geun-hye’s administration has attempted over several years to push ahead with a plan to increase the overall employment rate to 70 per cent by 2017. Eager to revive the Korean economy, which has been hard hit by the recent contagious outbreak of Middle East Respiratory Syndrome (MERS), in her nationally televised speech of 6 August, Park called for labour market reform to create more jobs, especially for young people, by pushing for a wage peak system that would offer job security to regular workers earning high income, while progressively cutting their wages after they reach a certain age. Park claimed the system, which is expected to create an environment that will produce more jobs for young people, was a win-win deal for both the older and younger generations.

But the Federation of Korean Trade Unions, one of Korea’s two major union associations, has, since April, boycotted a tripartite forum with its government and employer counterparts because of discussions on labour market reforms, especially the proposal to introduce the wage peak system and the revision of employment rules to make it easier to dismiss workers accused of underperforming.

Young people in their 20s and 30s seem no less angry, especially about the wage peak system. Kim Hyung-mo, the author of a book, Who Killed My Pension? bluntly demands in Pressian, a leading progressive internet news service: ‘Don’t speak about the wage peak system, and increase unemployment benefits.’ By declaring himself a ‘member of the young people’s union’, Kim argues that the most urgent task of labour reform is to improve by any means the lives of those who have been ‘excluded from the periphery of labor’.

Park’s plan

During the past three years, however, the minimum wage under the Park government has increased annually by over 7 per cent, from 4,860 won to 6,030 won ($AU6.90) an hour, or 24.1 per cent. Furthermore, the Minister of Employment and Labour notified on 5 August, one day before President Park’s public speech, that the minimum wage would increase 8.1 per cent next year.

As part of her plan to resurrect the economy, Park met the heads of 17 chaebol last month to ask their help to solve the country’s worsening youth unemployment. She even pardoned former SK Group chairman Choi Tae-won, who was serving a four-year prison term for embezzlement, in celebration of the 70th anniversary of Korea’s liberation from Japan’s colonial rule. Not surprisingly, SK Group, Korea’s third-largest conglomerate, recently announced that it would hire 24,000 young people over the next two years, which will increase further now that Choi has been released.

The Park government, overall, is seen as incompetent to the extent that it has dug itself into a hole with its economic policies.

Five of the 10 largest chaebol groups, including Samsung, Hyundai Motors, LG, Lotte and Hanwha Group, also announced their own plans to recruit young people. Thus the total number of new positions that will be offered to young people in the next two to three years, in theory, adds up to 96,569. According to Han’gyoreh Daily, however, almost 90,000 positions are internships in various forms, including on-the-job education or start-up education placements. Some chaebol have obviously padded their figures by adding increases to previously planned recruitment numbers.

Despite the president’s recent reiteration of a number of policy steps to solve the country’s worsening youth unemployment, the Park government, overall, is seen as incompetent to the extent that it has dug itself into a hole with its economic policies. Some argue that Korea’s job market should become more flexible in order to absorb more of the young, idle workforce. But they overlook the fact that Korea’s job security is the worst (and most flexible) among major economies, with an extremely short average work period of 5.6 years per job.

More drastic, fundamental policy change is therefore needed to turn the tide, preceded by a paradigm shift in the government’s management of the economy and government–business relationship. Politicians and bureaucrats must apply their strategic thinking to how to shift more of the fruits of South Korea’s economic growth from business to workers, young and old. One approach could be to direct a greater share of the returns of economic growth to more direct job creation, for example by boosting domestic demand. This could lead to higher corporate earnings as well as higher levels of employment for young people.

Just letting the chaebol dictate national policy will only make the rich richer and the poor poorer.

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Photo by AJ Colores on Unsplash