Unemployment problem

Make South Korean youth work in SMEs first

South Korea, despite being an economic powerhouse, has a serious youth unemployment problem.

The official rate of 11.2 per cent (as of April) is already quite high by historical standards, but it vastly understates the problem. About 500,000 graduates enter the job market every year, against around 200,000 permanent positions which are available. For the workforce as a whole, there are reportedly 3.5 million graduates (out of the total 14 million) who are out of a job.

Simply put, South Korea has a glut of overqualified graduates. More than 80 per cent of high school graduates go on to college, resulting in nearly 70 per cent of young people aged 25 to 34 having a college degree - the highest ratio in the world.

Most of them compete for scarce white-collar jobs at large conglomerates, known as chaebol, or the civil service. In 2015, about 90,000 applicants sat for a centre exam of Samsung, a conglomerate which needed only about 4,000 of them. The 23:1 ratio may seem brutal, until you consider the 122:1 ratio of the civil service entrance exam the same year.

During the recent presidential election, leading candidates have all tried to address the youth unemployment issue.

The liberal President Moon Jae In has proposed to create 810,000 public sector jobs, a programme which he intends to finance by taxing the wealthy. His centrist opponent Ahn Cheol Soo has denounced job creation through fiscal stimulus and emphasised the role of small and medium-sized enterprises (SMEs) instead.

President Moon, now that he has been elected, may want to pay heed, even though Mr Ahn's proposed remedy - wage support for new hires in SMEs, on top of existing tax breaks and subsidies - may well fall short of solving the structural problem.

What is the structural problem that I am referring to?

The paradox of South Korea is that eight out of 10 SMEs reportedly struggle to fill vital positions, even as young graduates line up in front of every job opening at a government agency or conglomerate.

According to a recent survey, the overwhelming majority of young people said they prefer to work in the government or at large firms, while only 6 per cent of them responded that they prefer SMEs.

Two young women looking at job-offer notices at a women's university in Seoul. South Korea has a high rate of youth unemployment of 11.2 per cent. PHOTO: AGENCE FRANCE-PRESSE

This cultural attitude is a huge problem because most new jobs in Korea are being created by SMEs. Between 2011 and 2014, SMEs created more than 1.7 million new jobs while the overall employment at large companies barely budged.

Here is a possible solution: The South Korean government can address the imbalance by government fiat. Specifically, the government can impose a requirement that anybody wishing to apply for a job at a government agency or a large company must have at least three years' working experience with an SME.

Ultimately, the simple measure proposed here will help Korean youth to see that there is more than one path to success; that it is okay to step off the beaten track; that it is better to explore a blue ocean than compete in a red ocean; that they could become less risk-averse and more entrepreneurial.

The idea was originally suggested to me by the founder of NexDisplay Kim Tae Yoon. It is a medium-sized manufacturer of mobile phone parts which had difficulty attracting talented graduates at the time.

I find the idea brilliant because of the social waste it will eliminate.

Right now libraries and cafes in Korea abound with young people preparing for the civil service exam. There are college students who defer graduation (so-called fifth-year students) and recent graduates who jump from one internship to another (so-called Homo Internus) because they cannot land coveted white-collar jobs at big conglomerates.

Under the new requirement, young people wishing to study for a civil service exam or apply to Samsung, LG and Hyundai can still do so - the difference is that they will be working full-time in SMEs while doing so.

But the impact of such a measure will go far beyond forcing young people back to work. South Korean youth mockingly refer to their country as Hell Joseon, literally meaning Hell Korea. The key reason is brutal competition for those coveted jobs.

Competition starts early on, with parents putting even small children into cram schools, so they may one day attend a top university. They also teach English to their children, hoping to build their "specs" for the job market.

By lessening the pressure to acquire top college degrees and lavish "specs", the SME work requirement could relieve parents of some of the financial burden associated with private tuition.

The measure could also rejuvenate the economy. Some of the top talents will likely stay with SMEs long after the mandated three years, helping them become large companies themselves.

Young students are usually narrow-sighted, dreaming of working at big banks or marketers of well-known consumer brands. They don't usually fancy working at a waste-management company or an elderly home operator - even though environment and senior care are probably two of the fastest-growing sectors of the future. Forcing them to work in SMEs would necessarily broaden their search and awaken them to alternative career tracks.

Ultimately, the simple measure proposed here will help Korean youth to see that there is more than one path to success; that it is okay to step off the beaten track; that it is better to explore a blue ocean than compete in a red ocean; that they could become less risk-averse and more entrepreneurial.

• Jung Kyu Kim is a director of ACA Investments, a private equity company based in Singapore. He is co-author with Young Oak Kim of The Great Equal Society: Confucianism, China And The 21st Century.

A version of this article appeared in the print edition of The Straits Times on June 16, 2017, with the headline 'Make S. Korean youth work in SMEs first'. Print Edition | Subscribe