Can Social Investment Policies Work in Post-industrial Economies? : An Analysis on the Labour Force Transitions in the Republic of Korea 1) Baek, Seung-ho (The Catholic University of Korea) Lee, Sophia Seung-yoon (Ewha Womans University) 1. Introduction Discussion around the need for a change in the welfare state in a new socioeconomic context has always attracted many not only in the academia but also those involved in the policy making. Literature on social investment suggests that the characteristics of welfare states by different time period are suggested to be divided into the early period previous to 1945, the Keynesian era, the neoliberal era and the period from 1990s onward labeled social investment (Morel, Palier & Palme 2012). Currently, the thesis of social investment is once again gaining its attention in Europe which is stated to recognize the transitions in the labour market with the society entering the new post-industrial era. It is suggested that the golden age of economic development and welfare state expansion has come to its limits and social investment policies are aimed for preparing whether than repairing. The presumption of the social investment argument is that the new economy which requires new policy logic is a knowledge-based economy where knowledge is considered as the main driver of the economic growth. Also the social investment perspective recognizes the new social risks from the changing structure of the society such as the need to reconcile work and family life, new family structures and more precarious forms of works (Bonoli 2005). So the aim of social investment perspectives is to modernize the post-war welfare state to better address the new needs (Morel, Palier & Palme 2012). Therefore policies with the social investment perspectives are consequently those which focus on developing human capital either by upskilling the labour force or making efficient use of the existing human capital such as active labour market policies or supporting women to work. The social investment literature highlights the difference between the social investment perspectives and neoliberalism but there are two fundamental commonalities. One is their belief on efficacy of the market system (Morel, Palier & Palme 2012) and the other is their focus on the supply of the labour force rather than the demand from the labour market. While acknowledging that social investment thesis provides insights 1) This work was supported by the National Research Foundation of Korea Grant funded by the Korean Government(NRF-2010-328-B00042)
for policies regarding the supply side of the post-industrial labour market, this paper questions how effective social investment policies can be without a consideration of the change in the demand side of the labour market in the service economy. Here we also use the term service economy rather than a knowledge-based economy to highlight the other end of the post-industrial economy where low skilled and low paid job has loomed large. We argue that social investment policies which focus on human capital development such as education and upskilling the labour force may not be as effective as it intended to be if there are no good jobs available. An omission of a discussion on the deficit of good jobs in service economies can lead to a continuation of neoliberal workfare. Our argument is tested by examining the case of the Republic of Korea (Korea hereafter). In 2011, 72.5% of high school graduates entered into tertiary education which is the highest among the OECD countries. However, only about a half of university graduate have found regular jobs. Also 25% of tertiary graduates under the age of 30 in 2009 were NEETs which refers to neither in employment nor in education. The rate of these inactive youth with tertiary education is double the OECD average (OECD 2012). Hence when examining the case of Korea, suggestions by the social investment thesis that unemployment is linked to lack of adequate skills to fill today s job (Morel, Palier & Palme 2012) is questionable. The case of Korea casts a puzzle to the argument since the human capital, at least when measured by education level, is developed in such short period of time but large share of the labour force is not participating in good jobs such as what would a knowledge-based economy would provide. Also when examining the incidence of low-paid work with a comparative perspective, Korea stands out again for having one of the highest rates among the OECD countries reaching around 26% in 2009 (OECD 2012). Then why is there such high rate of low-paid works when more than 70% of the high school cohort advances to tertiary education? We examine labour market transitions in Korea and suggest that social investment policies may not be as effective as suggested when not considering the demand side of labour market of post-industrial economies. Accordingly, we first critical review on the social investment literature and discuss on the characteristics of post-industrial labour market. Then we empirically examine the labour force and labour market transitions in Korea. Then we empirically analyze the changing characteristics of the demand side of labour market of current service economy by investigating the mismatch of skills between the labour supply and demand in the service economy. We then discuss on the limitation in social investment thesis when not fully considering the characteristics of service economy.
2. Social Investment literature 1) Social investment perspective and policies Main premises of the social investment thesis suggested by scholars from the western European countries are; i) firstly that the labour market is no longer in an industrial economy but is in knowledge based economy, and ii) secondly that post-industrial economy entails social changes which bring new risks. This paper focuses on the first presumption that social investment policies is needed because we have now entered a knowledge based economy which required upskilling of the labour force (Morel, Palier & Palme 2012). We argue that while the argument from social investment theory contributes to the field of welfare state discussion by highlighting the shift of the economy from an industrial one to a knowledge based economy, it presents its limitation in not fully considering the other end of the story an economic growth without employment growth and/or an increase in lousy jobs. Differences among Keynesian perspective, neoliberalism and social investment policies: i) Keynesian policies aim at creating jobs, ii) while policies with neoliberalism perspective focus on the supply of labour force suggesting that labour market regulations should be lessened. Although social investment perspectives is in the same line with neoliberalism perspectives in terms of focusing on the supply of labour force, social investment give more attention on the process through which labour is transformed. In other words, social investment focuses on upskilling of the labour force through learning. Social investment perspective differs from Keynesianism in the sense that it focuses more on the future and life cycle rather than equality outcome of the present. Social investment perspective discussed in Western European states focuses on the development of human capital through an investment in education and training. Policies with social investment perspectives: i) Education and training, ii) Sick pay and generous unemployment benefits, iii) active labour market policies, iv) work and life balance policies, v) make transition pay policies such as making non-standard jobs as a stepping stone. Social investment discussion in Korea Social investment perspective have started gain much attention from the mid 2000s in Korea. The discussion (Kim 2009) developed slightly differently from the
social investment perspective discussion in Western European countries. Firstly, social investment discussion is mostly focused on defining the political characteristics and the definition of the term. Secondly, large part of the discussion was devoted to rather the social investment thesis can overcome the limitation from neoliberlism policies. Thirdly, scholars debated on whether social investment policies can compliment income protection policies. Suggested policies with social investment perspectives are only a few such as family care policies, labour market activation policies. 2) Critique and orientation of the policy Both social investment discussions from the Western European countries and domestic give less attention to the changes in the demand side of the labour market. This paper focuses on the argument by social investment perspectives of the west that social investment policies are to up skill the labour force to better equip workers for knowledge based economy. Hence, we attempt to empirically examine the limitations in the social investment argument of not fully recognizing the increase of low paid, lousy jobs in the service economy. 3. Increase of lousy jobs in Service Economy It is suggested that empirically there was a major change in the structure of employment within the OECD countries between 1970 and 1990 and that the relative importance of manufacturing has sharply declined (Saeger 1997). Esping-Andersen defines the post-industrialized economy as an economy with a labour market which has gone through a decline of the manufacturing industry (Bonoli 2005, Esping-Andersen 1999). We use the term, tertiarization, and it refers to a substantial increase in the relative size of the service sector. A service economy is an economy where more than two third of the workers are participating in the service sector. For example, with the reference year 2005 (2005=100), the share of employment in the manufacturing sector shrunk by 60-70 per cent from its rate in 1970 in the United Kingdom and Sweden, and the employment rate in manufacturing continues to decrease (figure 1).
<Figure 1> SHARE OF EMPLOYMENT IN MANUFACTURING SECTOR (INCL. CONSTRUCTION) WITH 2005 AS A BASELINE. (2005=100%) (%) Source: OECD STAT database However all selected countries are experiencing a continuous increase in employment in service sector (figure 2). Among the selected countries, employment in the service sector increased most rapidly in Korea and also very fast in Germany in early 1990s. Figure 2. SHARE OF EMPLOYMENT IN SERVICE SECTOR WITH 2005 AS A BASELINE. (2005=100%) (%) Source: OECD STAT database
The stagnant productivity of the service sector hinders a wage increase. Low-skilled workers in service economy tend to work in a low-value added service sector where productivity is low such as in retail sale, cleaning, catering, etc. The expansion of the service sector and the replacing of the manufacturing sector provide a high premium for skilled and educated people displacing the low-skilled workers to the low value-added, low-waged jobs (Pierson 2001). 4. The case of Korean Service Economy The case of Korea cues that high education of level of the labour force may not be sufficient in increasing the labour force participation rate. For example, while the share of workers with tertiary education is one of the highest in OECD countries, the share of inactive youth with tertiary education is also one of the highest. FIGURE 3. THE SHARE OF INACTIVE YOUTH WITH TERTIARY EDUCATION IS HIGH IN KOREA By share of NEETs (neither in employment nor in education nor in training) in the 15-to-29 age group in 2009¹ 1. The OECD definition of NEETS differs from that widely used in Korea, which refers to youth aged between 15 and 34 who are not employed, not attending school, not married and not handling family responsibilities. The Korean definition also excludes college and university graduates who are inactive but preparing for job entrance exams for the public sector or big firms. Source: OECD (2011c), OECD Education at a Glance 2011 and Korea s Ministry of Employment and Labour.
market. Figure 4 suggests that premium for high education is low in Korean labour FIGURE 4. INTERNATIONAL COMPARISON OF LABOUR OUTCOMES FOR UNIVERSITY GRADUATES IN 2009¹ A. The gap between the employment rates of university graduates² and the total population B. Wage premium³ for university graduates² 1. For the population between the ages of 25 and 64. 2. Defined as tertiary-type A and advanced research programmes. 3. The wages of upper secondary and post-secondary non-tertiary graduates is set at 100. Source: OECD (2011c), OECD Education at a Glance 2011.
Also the incidence of low-paid work is the highest among OECD countries. FIGURE 5. THE INCIDENCE OF LOW-PAID WORK 1. The percentage of full-time wage earners that earn less than two-thirds of the median wage of full-time wage earners. Source: OECD (2011d), OECD Employment Outlook 2011 Up-skilling of the labour force may not be effective if the service economy does not provide good jobs. The labour productivity growth in low in service sector in Korea. More noticeably, especially the labour productivity growth in non-market services has been very poor. TABLE 6. LABOUR PRODUCTIVITY GROWTH IN MANUFACTURING AND SERVICES ANNUAL GROWTH RATE OF VALUE ADDED PER EMPLOYEE IN PERCENT Industry ISIC code 1980-1990 1990-1997 1997-2007 Manufacturing 15 to 37 6.4 8.7 8.7 Market services 50 to 74 4.3 1.6 2.6 Non-market services 75 to 99-0.2 1.7-2 Total services 50 to 99 2.6 1.5 1.2 Total economy 1 to 99 5.5 4.4 3.3 Source: Bank of Korea, National Accounts.
FIGURE 7. KOREA'S SERVICE SECTOR IS RELATIVELY SMALL AND HAS LOW PRODUCTIVITY IN 2008, BASED ON 2005 PRICES FOR VALUE ADDED Source: OECD National Accounts Database and STI Database. 5. The case of the Republic of Korea: Mismatch in the labour market This chapter examines the relationship between skill level and employment in the Korean labour market to investigate whether social investment policies focusing on human capital can be effective when not fully considering the lack of good jobs in the service economy. Mismatch between the education level(skill) and available jobs may be a structural problem of the service economy. If so, social investment policies focusing on upskilling of the labour force should be reconsidered. The mismatch between education level(skill level) and employment is examined by adopting the concept of underemployment. Underemployment refers to working in an occupation or job where the required education level is lower than the level of education of employed workers ( 박성재 반정호, 2007; 박성준 황상인, 2008; 신선미 손유미, 2008; 이찬영, 2008; 김준영 윤정혜, 2010; 이상호, 2012). Underemployment is normally examined by utilizing i) the mean value and standard deviation and ii) utilizing the mode. Utilizing the mean value entails some limitation as it is sensitive to outlier ( 김준영, 2010: 180). Hence, this study adopts the method of utilizing the mode and examines underemployment by comparing each worker's education level with the mode of workers' education level in each occupation.
Data source is 'Occupational Employment Statistics (Rep. Korea)'. Followings are the outcome of our analysis. <Table 1> Changes in total underemployment(%) underemployment matched employment 2001 13.05 52.71 2009 29.88 50.51 increase 16.83-2.2 <Table 2> Changes in underemployment level by sector(%) Agriculture Manufacturing Service matched employm ent matched employm ent matched employm ent 2001 24.71 29.02 8.88 52.62 15.61 53.15 2009 33.73 39.76 24.27 55.48 32.75 48.02 increase 9.02 10.74 15.39 2.86 17.14-5.13 <Table 3> Changes in underemployment level by gender(%) Male matched employment Underemployment underemployment underemployment Underemployment Underemployment Female matched employment 2001 12.86 53.5 13.54 50.67 2009 31.19 51.11 26.62 49.01 increase 18.33-2.39 13.08-1.66 - There is a general increase in the underemployment rate but the increase is most distinctive in service sector between year 2001 and 2009. Comparing different male and female workers, more male workers are underemployed than female workers. However, considering the smaller number of inflow of female workers into the labour market than male, the level of female underemployed worker is not neglectable. <Table 4> Changes in underemployment level by gender and sector(%) Manufacturing Service Male Female Male Female 2001 underemployment 8.94 8.62 15.7 15.43 2009 underemployment 24.75 19.73 36.09 27.48 increase 15.81 11.11 20.39 12.05
Findings from the above suggest that the mismatch between the education level and employment has been increasing and that may be related to changes in the demand side of the labour market in Korean Service economy. Therefore it can be suggested that the success of social investment policies focusing on upskilling the labour force can be achieved only when they are accompanied by policies on creating jobs that matches skill levels. 6. Conclusion and Implications to the social investment arguments Findings from this paper suggests that social investment argument in Korea may need to be discussed further than focusing on the characteristics and concepts of social investment. Secondly, social investment polices focusing on the supply of the labour force should be accompanied by policies on creating jobs that matches skill levels. Thirdly, analysis on unemployment by the social investment perspectives may need revision for not fully considering the changes in the demand side of the labour market. In a labour market with consistent high rate in underemployment, workers with high education may choose to defer the entering of the labour market and rather be unemployed ( 이찬영, 2008: 65). In sum, challenge in the service economy may be in creating good jobs rather than upskilling the labour force supply. This may increase the employment rate of the reserved working force and also increase the productivity in service sector. This study suggests that an emphasis on creating good jobs in service economy can enhance the effectiveness of social capital policies. 참고문헌이찬영 (2008). 청년층임금근로자의하향취업행태. 직업능력개발연구, 제 11권, 3호, pp.49-69. 이상호 (2012). 공간적요인이청년대졸자의하향취업에미치는효과. 공간과사회, 제 22권, 2호, pp. 박성준. 황상인 (2005). 청년층학력과잉이임금에미치는영향에대한분석-경제위기전후를중심으로. 노동경제논집, 제28권제3호, pp.141-166. 신선미. 손유미 (2008). 대졸청년층하향취업의결정요인. 직업능력개발연구, 제11권, 제 1호, pp.1-21. 박성재. 반정호 (2007). 청년층의하향취업원인과노동시장성과. 사회보장연구, 제23 권, 제4호, pp.1-28. 김준영. 윤정혜 (2010). 하향취업의지속성 : 청년층의하향취업경험이비햐향취업으로
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