Wednesday, December 08, 2010

Is South Korea Over Invested in Higher Education?

By Chris Denhart

A recent article in the Wall Street Journal, “The Miracle Is Over. Now What?” investigates the rise and plateau of South Korea’s economy in recent years. The interaction between educational factors and the economic boom and recess is of particular interest.

The economic boom that propelled South Korea into the list of world economic powers appears to be quickly coming to an end. Within the past 50 years South Korea has gone from steep poverty and hunger to the 15th largest economy in the world and is the home to such world recognized technological companies as Samsung and Hyundai. Its rapid growth is attributed in large part to its change from a rurally based society to an industrious one with a very large amount of economic output--43%--coming from exported goods.

However, the growth rate is declining. Average growth has decreased from 6.2% per year in the 90s to 4.3% during the past decade. Beyond that, the potential for growth has dropped further in the past 15 years than any other developed nation. So, the question one might ask is what factors are contributing to this plateau and decline?

The WSJ article points to two factors in particular that caught my attention. Their argument is: “Fewer People, More Skills.”

First, the "fewer people" issue. The Korean birth rate has dropped from 1.6 in 1990 to 1.2 children per woman in 2009. This will only continue to hurt an already dwindling labor force as fewer workers are being brought up. A second contributor to the hurting labor force is that Korean law deters women and immigrants from becoming well integrated into the work force. Only 53% of women work, below the developed world average of 57%, and those that do work are typically paid salaries around half that of their male counterparts, and are strongly encouraged to quit their jobs when becoming pregnant. South Korea has 557,000 foreign workers, which make up only 2% of the labor force, compared to 10% in the United States. Korean law forbids an immigrant from working more than 5 years with the same company.

These are all reasons that the labor force is lacking, but the thing that interests us most is that South Korea has become an over-educated society accounting for the “more skills” half of the argument. The article states:
So many people have become educated that fewer apply for lower-paid, lower-skilled jobs. That's left the nation's farms and manufacturers scrambling for labor, at the same time many college graduates spend their 20s waiting for opportunities in large companies and the government.
There are two cases presented in the article of students that have encountered a tough job market. The first will delay graduation in order that she may have a better chance at being hired. She stated, “These days, no one graduates as scheduled.” The second student was not invited to interview at any of the 15 companies to which she applied. She will earn her degree in management next year and “if she still can't get a job, will study foreign languages and take certification tests to build up her credentials.”So essentially, she will continue to stay in school until a position opens up.

I think we can agree that there is a problem with this situation. As industries are scrambling for workers to fill lower-end positions, there is a large number of able bodied people ages 20-30 that are on standby until a high position opens up. While I am not arguing that South Korea should stop educating its citizens, I think the argument can be made that it may currently be over-invested in higher education. An economy does not require all its workers to have highly advanced skills. Indeed, many jobs that are still very important to society do not require a college degree.

Of course it does not necessarily hurt to have a college degree. However, going to college is costly, both in terms of tuition/fees and one's time. When an economy does not have enough high skilled jobs to offer all its college graduates, it makes deciding to invest in a college degree more tenuous. Just as the U.S. may be over invested in higher education, it appears South Korea may be suffering in part from the same problem.

Chris Denhart is a research assistant at the Center for College Affordability and Productivity and a freshman at Ohio University.

1 comment:

Glen S. McGhee said...

This is from the WSJ story:

"These days, no one graduates as scheduled," she says. "Students put off graduation to have a better chance to get hired." Ms. Park ... applied for jobs at 15 companies, but she wasn't invited to interview at any. She'll get her degree next year and, if she still can't get a job, will study foreign languages and take certification tests to build up her credentials.

It sounds like she wants to stay in school until the right job comes along -- which is exactly what students are now doing in the US -- revealing an unexplored economic feed-back effect on enrollment levels.

But this is exactly the opposite of what we'd expect, isn't it? Supply and demand economic theory says that degree production will rise and fall in concert with labor market demand. But this is not happening, not now in the US, and not during the Great Depression either.

The reason we are not seeing an edu-bubble collapse is that degree production is not subject to market forces. The data on the over-education of service workers shows this plainly. Rather, credentials now attest to the possessor's inclusion in the middle-class, and not much else. They have become a symbolic good.

Instead of seeing market forces at work, the collapsing wave of demand for credentials only gives rise to pressures for accumulating degrees at the next advanced level, and so on, a kind of cascade effect that is part defensive strategy, and part denial.

And this isn't just happening in South Korea, or China (as others have noted).

See if you can get hold of Stephen J. Appold’s insightful paper, "The Weakening Position of University Graduates in Singapore’s Labor Market: Causes and Consequences" in Population and Development Review, Vol. 31, No. 1 (Mar., 2005), pp. 85-112.

"During the third quarter of 2001, 29 percent of workers in Singapore who lost their jobs were university graduates. Because university graduates comprised 16 percent of the work force, this implies they were approximately 80 percent more likely than average to be laid off. During the same quarter, 40 percent of persons under age 30 years who were unemployed held [postsecondary] degrees."

Again, the burden fell disproportionately on the highly educated, leading Appold to conclude that, "A university education no longer ensures the secure position in the work force that it once did" and "The weak position of educated labor in the work force is a puzzle for both economic and political reasons."

Appold's conclusion is worth citing in full:
"An expanding surplus of university graduates has been chasing the available jobs with the predictable effects: slower salary increases, the downward filtering of graduates into less-desirable jobs, and the erosion of the relative income advantage of educated labor. Overeducation in Singapore results in a diminishing value of each year of schooling, creating a ratchet effect. As access to higher education expands, the exclusivity is reduced, inducing a search for ever-higher credentials. The equilibrating forces to discourage overeducation, predicted a generation ago, have not yet surfaced. University education continues to be popular even if many universities do not raise graduate earning power."

Appold’s overall point is to challenge prevailing economic views regarding the linkage between education and employment. Ms. Park's story suggests that they are no longer coupled in the usual way.

Question is, when did the train leave the tracks, and can anything be done to get the train back on the tracks?