The effect of labour market polarization on university students’ job market‐related outcomes in the Republic of Korea: Implications for youth unemployment

• Published date: 01 September 2019
• Date: 01 September 2019
• DOI: http://doi.org/10.1111/ilr.12097

International Labour Review, Vol. 158 (2019), No. 3

Copyright © The author 2019

Journal compilation © International Labour Organization 2019

* Macroeconomics Team, Economic Research Institute, Bank of Korea, email: sychung@

bok.or.kr.

Responsibility for opinions expressed in signed articles rests solely with their authors, and

publication does not constitute an endorsement by the ILO.

1 In 2015, the enrolment rate stood at 70.8 per cent.

The effect of labour market polarization

on university students’ job market-related

outcomes in the Republic of Korea:

Implications for youth unemployment

Sungyup CHUNG*

Abstract. This article aims to assess the effect of the labour market environ-

ment on university students’ labour market-related behaviour in the Republic of

Korea. Using data from the country’s Graduates Occupational Mobility Survey

for 200 5–13, the author estimates the effect of macroeconomic variables on uni-

versity students’ job market-related outcomes. Results indicate that labour market

polarization, as measured by the labour market polarization index developed by

Chung and Jung (2016), has a signicant effect on both the nominal and masked

(through extension of university enrolment and university transfers) unemploy-

ment of university students. These ndings imply that the labour market structure

is a key element in understanding youth unemployment.

In the Republic of Korea, more than 70 per cent of high-school graduates

enrol in university or other higher-education institutions.1 Including re-

peaters, the university enrolment rate is estimated to stand at over 80 per cent

of eligible students, implying that the analysis of university students’ labour

market-related outcomes is essential to understanding youth unemployment.

This article aims to analyse how labour market conditions, and in par-

ticular polarization, will affect the way in which university students approach

their careers. Most of the previous studies on the youth workforce have con-

sidered the unemployment variable or the probability of unemployment after

International Labour Review510

graduation (in terms of unemployment duration), while others have focused

on the individual characteristics that determine unemployment. This article,

however, tries to identify the effect of macroeconomic and individual factors

on various aspects of university students’ labour market-related outcomes.

On the rationale that unemployment in the early stages of a person’s

career will look bad to potential employers, students try to hide or avoid job-

lessness by extending university enrolment or transferring to another uni-

versity. Looking at the labour market-related activities of university students

before and after their graduation can help us to identify cases of masked un-

employment that blur the number of “left-outs” in the system. Accordingly,

this article seeks to cover most labour market-related outcomes, from un-

employment to further education after graduation.

In addition, indicators of the macroeconomic environment of the labour

market, such as the GDP growth rate and labour market structure, allow us

to analyse what determines the performance of the youth labour market and

to consider policy implications. This article thus aims to contribute to the lit-

erature on this subject by assessing university students’ job market-related be-

haviour in a more integrated way, and by expanding our knowledge on how

labour market structure, as reected in labour market polarization, might af-

fect youth employment.

When compared to other age groups, there are some labour market

characteristics that are specic to young workers or university graduates. In

particular, the unemployment rate of young workers is higher than that of

any other age group. In 2015, the unemployment rate of workers in their 20s

stood at about 9.1 per cent, which is approximately 6.5 percentage points

higher than the average for other age groups, giving rms relatively greater

bargaining power over labour in this age cohort (see gure 1).

2

Another char-

acteristic of this group is that some individuals are able to conceal spells of

unemployment on their résumés by enrolling for extra semesters or postpon-

ing graduation. As gure 2 indicates, aside from obligatory military service,

preparing for the job market – for example, through short-term internships

or language training – is the main reason for taking leave of absence from

university, suggesting that the actual unemployment rate of recent university

graduates is higher than the ofcial gure. These differences may originate

from imperfect substitution between workers in different age groups,

such that

university graduates’ experiences of the labour market are likely to be differ-

ent from those of other age groups.3 Furthermore, as rst-time candidates on

2 Similarly, according to data from the Graduates Occupational Mobility Survey conducted

by the Korea Employment Information Service (KEIS), about 11 per cent of university graduates

were neither employed nor enrolled in any other university over the period from 2003 to 2013.

3 For studies regarding imperfect substitutions between different age groups, see Dougherty

(1972) and Ferguson (1986), among others. Most of the empirical analyses of the substitutability of

workers in different age groups nd that the substitutions are imperfect, creating separate markets

specic to age cohort (e.g. Hamermesh and Grant, 1979; Merrilees, 1982; Lewis, 1985).