As youth unemployment prolongs, a study has found that it has a negative impact on the Korean economy by damaging total factor productivity and potential growth rate.
The Korea Economic Research Institute, affiliated with the Federation of Korean Industries, announced on the 20th that the youth unemployment rate was more than twice higher than the overall unemployment rate in the past 11 years in an analysis of ‘The Impact and Implications of the Increase in Youth Unemployment on Growth Potential’.
The average annual youth unemployment rate (ages 15-29) for 11 years since 2010 (2010-2020) was 8.7%, 2.4 times higher than the overall unemployment rate of 3.6%. Compared to the non-youth unemployment rate (2.6%) during the same period, the multiplier is 3.4 times wider.
The rate of deterioration of youth unemployment in Korea is one of the most severe among OECD countries. During the same period, the average annual rate of increase in the youth unemployment rate (aged 15-24) in the OECD was 0.76%, ranking 10th among 38 OECD countries. The average ratio of the youth unemployment rate to the overall unemployment rate was 2.8 times (fifth place), and it was in the top ranks.
The Korea Economic Research Institute conducted an empirical analysis using annual data from 1990 to 2019 to assess the impact of youth unemployment on total factor productivity and potential growth rate. As a result, it was found that the youth unemployment rate in the past significantly affects the current growth rate of total factor productivity and the potential growth rate.
It was also analyzed that the youth unemployment rate and potential growth rate have an influencing relationship with each other. The increase or decrease in the youth unemployment rate can lead to a continuous chain effect that leads to an increase or decrease in the potential growth rate.
Korea Economic Research Institute also performed a regression analysis to quantitatively estimate the effect of the youth unemployment rate on the increase rate of total factor productivity and potential growth rate. As a result of the analysis, it was found that when the youth unemployment rate rises by 1%p, the increase rate of total factor productivity decreases by 0.12%p and the potential growth rate decreases by 0.21%p.
High youth unemployment reduces the opportunities for young people to acquire new skills and knowledge through work, undermining the accumulation of human capital, and increasing the possibility that they will not be able to utilize their majors and aptitudes, making it difficult to efficiently allocate labor force. Han Kyung-yeon analyzed.
Kwang-Ho Choo, head of economic policy at the Korea Economic Daily, said, “In order to solve youth unemployment, improve the economic structure and break corporate regulations, etc. Efforts need to be made to increase capacity,” he said.
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