Promoting Economic Freedom as a “Ladder of Hope” for Young People

Nothing is as precious to young people as jobs. Unfortunately, in South Korea today, not only are good jobs not increasing, even existing jobs offer no assurance for the future. It is no wonder that terms like “baeksu,” meaning someone who remains unemployed even after trying 100 times while preparing for employment and scraping by, and “youth bankruptcy,” combining unemployed youth and credit defaulters, have become common. Young people even describe their stifling reality with the phrase “Hell Joseon.”

One in four young people in South Korea is unemployed. According to statistics, the youth unemployment rate reached 9.8% in July 2019, while the real unemployment rate stood at 23.8%. This is a very dismal report card compared to the Moon Jae-in administration’s ambitious pledge to make youth job creation its top priority. Declaring itself a “ladder of hope” for young people, the government spent KRW 77 trillion over four years. Yet despite its promises and massive fiscal spending, young people see neither hope nor jobs.

Why are young people experiencing despair instead of hope? Because a simple fact is being overlooked: the state cannot create jobs. The government has stepped in to do what businesses are supposed to do, so even after spending enormous sums, it has little to show for it. Government intervention in the market shrinks private-sector activity, destroys jobs, and worsens income inequality and social polarization. Many government efforts to help young people, the socially vulnerable, and the poor generally produce exactly these results.

Minimum wage hikes are also a leading policy that reduces jobs. Claiming that wages must guarantee an adequate income for basic living, the government has sharply raised the minimum wage over the past several years. Small business owners immediately gave up hiring part-time workers because of rising labor costs, and companies also began reducing recruitment. As jobs declined across society, competition for employment intensified, making it harder for inexperienced young people and unskilled workers to find jobs. From a business standpoint, if firms must pay higher wages to hire workers, they will naturally prefer people with more experience and skills. Raising the minimum wage has ended up taking jobs away from young people and the socially vulnerable.

The government’s market intervention policies are bound to fail. By its nature, state interventionism does not create new value; it merely redistributes the market’s outcomes through political power. Moreover, the more the state intervenes, the more the market contracts and the less it produces. Jobs were reduced because the government controlled wages and intervened in the market, yet it then wastes precious tax money claiming it will fix the problem. In fact, the government spent KRW 2.8188 trillion in 2019 alone to reduce the side effects of minimum wage hikes.

Jobs directly created by the government also result in wasted tax money. Firms that survive in the market by winning consumer choice are precisely the competitive firms. Government-led jobs, however, are created in ways that have little to do with productivity or efficiency, instead favoring firms and industries that suit the government’s preferences. Such jobs inevitably disappear easily once government funding is cut off. Examples include the support programs related to “green growth” and the “creative economy” promoted by the previous administration, as well as this administration’s solar power budget.

So how can the high-quality jobs our young people want be created? The solution is to expand economic freedom. Only by reducing excessive regulation and government intervention in the market can businesses invest freely and increase hiring. In that process, business productivity rises, and people’s incomes rise along with it. We call this process economic growth. This point is clearly reflected in the Economic Freedom of the World index released each year by the Center for Free Enterprise (CFE). In the 2019 index, Hong Kong ranked first in the world, while the United States, the United Kingdom, and Singapore were among the top performers. The implication is clear: if we want more good jobs and higher incomes, we must expand economic freedom.

Korea ranks 33rd out of 162 countries worldwide in the economic freedom index. Of the five components that make up the index, sound money and protection of property rights rank relatively high, at 16th and 30th respectively. By contrast, Korea ranks lower in size of government at 49th, freedom to trade internationally at 62nd, and regulation at 69th. This can be interpreted to mean that government intervention in the market and regulation of businesses are reducing the economy’s vitality.

If we truly want to provide young people with a ladder of hope, we need to work to increase economic freedom. Rather than relying on government spending, we should encourage private-sector investment and reduce regulation and interference in the market. After all, jobs are created not by the government, but by businesses.

Eun-kyung Kwak, Director of Corporate Culture Division, Center for Free Enterprise (CFE)

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Original title: 청년들에게 필요한 ‘희망사다리’ 경제자유 증진에 있어

Author: Eun-kyung Kwak

Date: 2019-10-10

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&pn=24&idx=21950