[Smart Economics] Expanding Youth Employment

Youth Employment Quotas Miss the Mark… Employment Will Rise Only When Regulations Are Removed

Youth unemployment is severe. Public opinion is also growing louder that the government must take some kind of action. So the stopgap measures the government has come up with include mandatory hiring quotas, youth internship programs, and additional youth employment subsidies. These are a mix of employment quotas and government subsidy schemes. For example, under the youth internship program, when a small or medium-sized enterprise hires a young person as an intern, part of that person’s wages is subsidized by a government ministry or local government.

If, after the internship period ends, the company hires that intern as a full-time employee, an employment incentive may also be provided depending on the implementing agency. In addition, the government has created various employment promotion measures to encourage companies to hire more young people.

The problem is whether these piecemeal policies are actually effective. Since they are funded by taxpayers’ hard-earned money, they clearly should produce results, but in reality they do not. That is because not many internships lead to regular full-time employment after the internship period ends. There are even bitter rumors that some shameless companies hire interns, then dismiss existing employees and assign the departed workers’ jobs to the interns. The behavior of some companies that exploit systems intended to promote youth employment is certainly wrong, but fundamentally it also shows that such employment policies cannot serve as a real cure.

A Measure That Can Save Both Youth and Businesses

Why is youth employment not increasing? More broadly, why is employment itself not increasing? Is it because companies are relocating factories overseas and merely piling up retained earnings instead of creating jobs? No. Companies, like living organisms, have an organic structure and must continuously grow and evolve in order to survive. Just as a child must eat to grow, companies must hire in order to grow. A company that does not hire cannot grow.

To cure a person’s illness, the diagnosis must first be accurate. The same is true of the economy. The reason companies cannot easily increase hiring is that the business outlook surrounding them is poor. Moreover, Korean companies have no choice but to operate cautiously because of all kinds of regulations, taxes, and levies.

Consider employment-related regulations. In Korea, protection for regular workers is excessive. Once a company hires a regular employee, pressure from labor unions and labor law restrictions make it virtually impossible to let that person go. Can a company’s effort to adjust employment according to its business conditions really become the subject of a lawsuit? Yet in 2009, the SsangYong Motor union filed a lawsuit over precisely this issue. In other words, it sought to have a non-expert court judge reexamine a managerial decision made by professional executives in order to save the company. After years of litigation, the Supreme Court ruled that management’s layoffs were valid, but the tangible and intangible losses SsangYong Motor suffered over those years are beyond description. In such circumstances, companies are almost afraid to hire people.

In Romance of the Three Kingdoms, there is a scene in which Liu Bei asks his strategist Pang Tong for advice when attacking Yi Province. Pang Tong offers Liu Bei three ideas—upper, middle, and lower strategies. We can also think of ways to increase youth employment in terms of upper, middle, and lower strategies.

The best strategy is, first of all, to make Korea a country where it is easy to do business. If the various regulations that bind businesses are swept away and a market-friendly environment is created, companies will increase investment on their own, and employment will naturally rise as well.

If the best strategy is difficult, then what is the second-best strategy? If it is impossible to eliminate all regulations, then at the very least employment-related regulations should be abolished. If companies cannot reduce the number of high-wage, regular middle-aged and older workers, how can they be expected to increase youth hiring? Protection for regular workers should be reduced, and in the case of middle-aged and older workers receiving high wages, their pay should be able to be readjusted to more realistic levels.

The worst strategy is something like the youth internship program. In a capitalist market economy, any policy that emerges when companies cannot act as the main drivers and are instead dragged along by the government is a poor policy. The youth internship program is, so to speak, merely symptomatic treatment that addresses not the cause of the illness but only its symptoms. That is why, in a small number of cases, it inevitably becomes a foolish system that employers exploit simply to pocket subsidies. Most honest companies do not want these stopgap measures either.

When the Future Feels Uncertain, Investment, Hiring, and Growth All Become Difficult

It is a well-known fact that today’s young people are struggling because of the long economic slump. Life is so difficult that terms such as the “three-give-up generation”—those who give up employment, marriage, and childbirth—have even come into use. But businesses are in the same situation. Uncertain about the future, many are becoming “three-give-up companies,” hesitating over investment, hiring, and growth. Just as young people want to live well, businesses also want to thrive. Set businesses free. Youth employment and business are partners, and when businesses recover, the youth employment problem will naturally be resolved.

△ Please remember

In a capitalist market economy, any policy that emerges when companies cannot act as the main drivers and are instead dragged along by the government is a poor policy. The youth internship program is, so to speak, merely symptomatic treatment that addresses not the cause of the illness but only its symptoms. That is why, in a small number of cases, it inevitably becomes a foolish system that employers exploit simply to pocket subsidies. Most honest companies do not want these stopgap measures either.

Sung-no Choi, President of the Center for Free Enterprise (CFE)

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Original title: [스마트 경제 읽기] 청년 고용을 늘리기 위하여

Author: Sung-no Choi

Date: 2021-07-05

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=column&pn=4&idx=24020