Employment effects of COVID-19 pandemic will persist for next 4 years, study predicts

Posted on : 2021-03-16 17:30 KST Modified on : 2021-03-16 17:30 KST
The BOK makes grim predictions about the COVID-19 pandemic’s impact on the job market for young people
The photo shows a puzzle board at a job fair in South Korea. (Hankyoreh photo archives)
The photo shows a puzzle board at a job fair in South Korea. (Hankyoreh photo archives)

The employment effects of the COVID-19 pandemic on job opportunities for recent college graduates and wage levels in South Korea will persist for the next four years, a study predicts.

A report titled “The Long- and Short-Term Effects of Worsening Employment Conditions on Recent University Graduates” was published Monday by Oh Sam-il and Lee Sang-ah, respectively a division director and investigator at the Bank of Korea (BOK).

In it, they estimated that a percentage-point rise in the unemployment rate for a graduating year was associated with a 4.3% decline in annual wages in the first and second years of employment, and a 2.3% in decline in the third and fourth years.

At 4%, the unemployment rate in 2020 was 0.5 percentage points higher than the past average of 3.5%. Simply plugging the numbers in shows that the initial annual pay for a recently employed graduate has declined by around 2.15% (4.3%/2).

The analysis also found that the likelihood of a recent university graduate finding employment at a large corporation declined by 3.5 percentage points in the first and second years after graduation and 2.3 percentage points in the third and fourth years for each percentage-point rise in the unemployment rate for that graduating year.

The same formula showed that the likelihood of a recent university graduate going to work at a large corporation within two years had fallen by around 1.75 percentage points (3.5%/2).

An examination of the report findings — based on Korea Labor & Income Panel data from 1998 to 2019 — showed that graduates in the humanities were hit the hardest in terms of specific majors.

For humanities graduates, a percentage-point increase in the unemployment rate for their graduating year was estimated to translate into a 2-6% decline in wages by the fifth and sixth years after employment. For science and engineering graduates, a loss of wages amounting to 5% was found in the first and second years after graduation.

In contrast, graduates in medicine and education — fields with strong links to specific professions — show no major impact despite the rise in the unemployment rate.

By gender, the likelihood of employment at a large corporation was 4 to 6 percentage points lower for males in their third to fourth years after graduation, while wages were down by 2-5% through their fifth and sixth years after employment. For women, employment situations were determined more by marriage and childbirth than by the unemployment rate.

Indeed, the declining employment situation amid the COVID-19 pandemic has been most pronounced among young people.

According to a Statistics Korea survey of the economically active population, the number of young people counted as employed was down by 5.3% between February to December 2020, compared with a 2.4% decline in employment among those not classified as “young.” Downgraded employment among university graduates rose by around 10%.

“We need to develop employment measures for young people to ensure that this does not lead to structural issues, such as a ‘scarring effect’ where wages do not recover over time,” Oh Sam-il said.

By Han Gwang-deok, finance correspondent

Please direct comments or questions to [english@hani.co.kr]

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