The Bank of Korea: "Employment Shock Has Major Impact on Middle-Lower and 2-Year College Graduates"

Bank of Korea BOK Issue Note
Short- and Long-Term Effects of Worsening Employment Conditions on New University Graduates

[Asia Economy Reporter Kim Eunbyeol] An analysis by the Bank of Korea revealed that if the employment situation worsens, negative impacts are significantly observed among graduates from mid-to-lower tier universities and 2-year colleges, excluding the top 30 universities.

According to the 'BOK Issue Note: Short- and Long-term Effects of Employment Deterioration on New University Graduates' released by the Bank of Korea on the 15th, for graduates from mid-to-lower tier and 2-year universities excluding the top 30 four-year universities, a 1 percentage point increase in the unemployment rate results in wage losses of 2-5% up to 3 to 4 years after graduation.

On average, when the unemployment rate in the graduation year rises by 1 percentage point, the annual wage loss in the 1st to 2nd year is 4.3%, and the wage loss rate in the 3rd to 4th year is 2.3%. The impact on mid-to-lower tier and 2-year college graduates was greater than this. This result is based on the Bank of Korea's analysis, which classified the top 30 universities according to the JoongAng Ilbo university rankings from 2005 to 2019 as 'top-tier universities.'

Oh Sam-il, Deputy Head of the Employment Analysis Team at the Bank of Korea's Research Department, stated, "Labor market shocks at the time of graduation negatively affect new graduates from mid-to-lower tier and 2-year universities, whereas they do not have a significant impact on graduates from top-tier universities."

When examined by university major, worsening employment conditions at graduation were estimated to have negative effects on new graduates in the humanities and natural sciences fields. Conversely, new graduates in vocationally specialized fields such as medicine and education did not show significant effects.

Specifically, a 1 percentage point increase in the unemployment rate is estimated to cause wage losses of 2-6% up to the 5th to 6th year for humanities graduates, and up to 5% wage loss in the 1st to 2nd year for natural sciences graduates.

When labor market shocks are severe at graduation, negative effects are observed not only on wages but also on employment in large corporations. It is estimated that a 1 percentage point rise in the unemployment rate in the graduation year lowers the probability of employment in large companies by 3.5 percentage points in the 1st to 2nd year and by 2.3 percentage points in the 3rd to 4th year.

Regarding the analysis results, Deputy Head Oh advised, "The deterioration of employment conditions due to the spread of COVID-19 has a considerable negative impact on new university graduates entering the labor market for a significant period, and these effects may vary depending on the university and major." He added, "Youth employment policies should focus on preventing the recent employment downturn from leading to structural problems such as scarring effects and hysteresis."

This content was produced with the assistance of AI translation services.