A Bank of Korea analysis found that the quality of youth employment has deteriorated markedly, with the share of temporary and daily workers among employed young people growing. The BOK diagnosed the phenomenon as the result of intertwined structural factors such as AI (artificial intelligence) technology change, industrial restructuring and a rigid labor market, and said industrial policy and labor market structural improvements must be pursued together.
On the 26th, the BOK published “BOK Issue Note: Sluggish Youth Employment and Policy Tasks,” written by researchers Hwang Su-bin, Jeong Gang-hui and Jeong Seong-yeop. According to the report, the employment quality index for young people aged 15-29 averaged 101.1 in 2014-19, but averaged just 94.7 from January 2023 through September this year.
The index is a measure that bundles job stability, economic compensation and working environment to comprehensively gauge the level of work that workers actually feel. It sets the overall average from January 2010 through September this year at 100, excluding the COVID period of 2020-21 from the calculation.
Compared with other age groups, the retreat among young people stood out. Over the same period, the index for the core age group of 30-59 rose from 100.2 to 104, and for those aged 60 and over from 97.8 to 105.6. Looking at the recent index calculated with January 2023 as 100, the core age group rose to 103.2 last month, while young people fell to 94.8.
The BOK saw the cause as a growing trend of young people lowering their sights and entering the secondary market centered on small and midsize firms and non-regular jobs, as demand did not grow in the primary labor market dominated by large companies and regular jobs. “In the past slump (2014-19), young people mainly waited to enter the primary market, which showed up as weak quantitative indicators such as a rising unemployment rate, but recently young people with lower job expectations have been entering the secondary labor market, which appears to have led to a qualitative decline in employment,” said Hwang Su-bin, a section chief on the BOK Research Department’s employment trends team.
Changes in industrial structure were cited as the background to the stagnation in primary labor market demand. According to the BOK, the industrial structure has shifted toward IT manufacturing, which does not create many regular jobs. It explained that a disconnect has emerged in which IT manufacturing leads production while the share of regular hiring remains high in non-IT manufacturing and services, so growth does not translate into expansion of primary labor market jobs.
In occupations and industries heavily affected by AI, preference for experienced hires is growing, and demand for the entry-level and basic tasks that young people have mainly handled is shrinking rapidly. According to the Economically Active Population Survey by the Ministry of Data and Statistics, the labor force participation rate and employment rate were 49.8% and 46.6% in January 2022, just before the introduction of generative AI, but fell to 46.8% and 43.7% this year. Over the same period, the share of temporary and daily workers rose from 30.7% to 32.6%.
The BOK projected that even if primary labor market demand revives, it will not be easy for young people already stuck in the secondary market to move over, so the slump could drag on. “The proportion of young people who moved from the secondary labor market to the primary labor market is estimated to have fallen from the 8% range in 2014-19 to the 5% range in 2023-24,” Hwang said.
A rigid labor market structure was also singled out as a stumbling block to young people’s entry. According to Organisation for Economic Co-operation and Development (OECD) statistics, countries with stronger employment protection tend to have lower youth employment rates, and Korea’s “protection index for individual dismissal of regular workers” ranked 10th among 23 major countries, relatively high.
The BOK called for pursuing industrial policy and labor market structural improvements in parallel. “We need to create conditions in which the high growth of IT manufacturing can spill over to related industries and the domestic demand sector,” Hwang said. “We need organic links between education and industry that can meet semiconductor-centered growth and the labor demand required by the AI era.” She added, “The labor market structure must also raise the flexibility of employment systems so that young people can smoothly enter and move within the labor market.”