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  • South Korea’s “lost generation” of youth? – 6 socio-economic challenges

    January 29th, 2013  by  Asia-Pacific Global Research Group - Jasper Kim

    *(Q&A below is taken from a recent interview with a local South Korean broadcaster as of the date of this upload)
     
    1) Last year there were over 300,000 Korean college graduates, but only 18,500 jobs for them, what sort of impact is this having on the younger generation?
     
    It’s a case study where supply vastly trumps demand. So it’s a big hit economically for the younger generation trying to secure employment after graduation. This is especially impactful since typically it’s the first job after graduation that can often define a person’s career trajectory. What this statistic does not show is the “invisible” overlapping demand for the same types of jobs with the same bandwidth of companies and organizations. In Korea, there’s a singular mindset that being “successful” in terms of securing a job means working for one of the large conglomerates (Hyundai, Samsung, LG) or to become a government official (공무원). Since many young people still live with their parents until marriage or other event, this means that they are not as “economically squeezed” as compared to those seeking jobs in the US and Europe where independence is considered a relatively greater virtue.
     
    2) Due to the difficulty of securing entry-level jobs, many young South Koreans are giving up their dreams, taking low-paying temporary jobs and postponing marriage, how is this going to reshape the economy?
     
    South Korea’s youth employment challenges have led to a “lost generation” – which accounts for a sizable portion of the nation’s economy. Take the statistic that South Korea’s youth unemployment (those seeking jobs between the ages of 15-29) has more or less hovered around the 7% mark, nearly twice the number for the general population. What’s also interesting is the unique Korean cultural aspect to this equation, that many of the most qualified talent in Korea are not actively engaged in the labor markets since they are in “near constant test preparation” as a default, career in and of itself. This comes in the form of taking several years from employment to study and sit for either a company-specific or government entrance exam. As an example, the former Korean bar exam was notorious for its excessively low passage rate of 3-5%. Even successful bar exam passers had to sit for the bar three years on average. Japan has a similar “lost generation” phenomenon. In short, for contemporary South Korea, its youth will earn less, in a more volatile and changing job market, which will dramatically change South Korea’s socio-economic landscape in the near future.
     
    3) Many are unable to save up for their own house, let alone saving for retirement, how can the Korea, government continue to support an aging population which will no longer be able to support itself?
     
    Our Group has seen clear evidence that South Korea is one of the world’s fastest aging societies. Soon the demographic structure will be top heavy with senior citizens who are seeking public funds rather than contributing to them. As a result, the country will be hard pressed to figure out how to pay for such public benefits with a shrinking workforce, low fertility rates, and a super aging society. Ultimately, if no other solution is found, South Korea will simply have to go into debt (through the issuance of Korean government bonds in the open markets). But such funding scheme will only delay, not resolve, its fiscal woes.
     
    4) Students who study overseas are finding success in starting-up their own businesses abroad, is this a sustainable direction for the younger generation to follow?
     
    This would in essence mean a net outflow of South Korea’s best and brightest offshore. Many countries, including India and China, have benefitted from so-called “boomerang” talent–those who left the country to live and/or for education, but then return for one reason or another. The challenge in South Korea is that its culture is not a “risk taking” culture, rather, it’s defensively postured for secure “permanent” jobs with the largest corporations or the public sector. But having a critical threshold amount of boomerang talent could change this pivot towards a more offensively postured one that is more geared to making modern day South Korea a start up nation similar to the US and Israel (to name just a few).
     
    5) Considering South Korea’s e-commerce is the sixth largest in the world, why is the market so difficult for domestic start-ups to penetrate?
     
    The main, but not only, factor is the lack of true venture capital (VC) firms onshore in South Korea today. VCs exist in name, but in substance, the true “high risk, high reward” risk-taking, long-run spirit is still lacking. Also, a notable portion of start-up capital is sponsored (subsidized) through the government. As the former Harvard president and US Treasury Secretary, Larry Summers, once quipped, “The government makes a terrible venture capitalist.” This is because most start-up funding is based on the mindset that the invested company must go public (IPO) as soon as possible, so that the investor can be profitable in the short run. Maybe South Korea has a different interpretation of how to create a start-up nation, but our Group’s view is that the VC/angel investor must be patient and adhere to the “99 strike-outs for 1 home run” investment mindset.
     
    6) Are the economic difficulties for the younger generation, which was once the backbone of the Korean economy, likely to continue or is there hope ahead?
     
    Nobody knows for sure. But in a slow growth era, where governments are highly indebted, it looks like economic difficulties for the younger generation will continue. The one silver lining is that South Korea is highly tech-savvy, at least in terms of the products and physical landscape of Seoul. Further, its mindset, the nation’s operating system, has a chance to convert from the “Chosun Corea” mindset to the globally competitive “Global Korea” mindset, as more and more of the nation’s youth live, study, and work overseas and bring such perspectives back to their native ecosystem.
     
     

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