The Bank of Korea: "Increase in Employment Regardless of Major During Recession... Continued Wage Losses Among Youth"

'Analysis of the Effect of Major Mismatch on Wages of College Graduates During Economic Downturns'
Youth Find It Harder to Save Seed Money... Negative Impact on the Economy

[Asia Economy Reporter Jang Sehee] An analysis has emerged that continuous wage losses will occur in the future as the mismatch between majors and industries deepens during economic downturns.

Choi Youngjun, Deputy Director of the Micro-Institutional Research Office at the Bank of Korea Economic Research Institute, stated this on the 21st in the BOK Economic Research report titled "Long-term Effect Analysis of Major Mismatch on the Wages of College Graduates during Recessions."

Using data from the Korean Labor Panel from 2002 to 2019, majors and industries were reclassified into six categories each, and the degree of major mismatch was estimated. The results showed that the degree of major mismatch expands during recessions when jobs are scarce. This means that the more difficult the economy, the more people are employed in fields unrelated to their majors.

In fact, Korea’s major mismatch rate is very high among OECD countries. Among the 29 OECD countries participating in the adult skills survey, Korea’s major mismatch rate was 50.1%, ranking second after Indonesia (54.6%).

Deputy Director Choi explained, "When college graduates get their first job in a field unrelated to their major during an economic downturn, continuous wage losses may occur."

The report showed that for college graduates who graduated during the 1998 recession, real wages decreased by 8.3% in the first 0?1 years of work experience and then the decrease narrowed to 7.0% in 2?3 years. In contrast, during the 2005 recession, the decrease was estimated at -4.5% to -9.2% over 0?3 years of work experience, and in 2009, it was estimated at -7.0% to -9.4%, indicating a wider decrease than in the 1998 recession.

The report noted that due to major mismatch, college graduates find it difficult to build job-related skills in their major, which restricts their ability to move to better jobs. Furthermore, it diagnosed that continuous wage losses will have a negative impact on the economy in the future.

Deputy Director Choi said, "The degree of mismatch between majors and industries expands during recessions," adding, "If college graduates who get jobs continue to receive inadequate wages, it may become difficult for them to accumulate seed money." He further explained, "If they continue to receive inadequate wages, it could negatively affect the entire economy."

Finally, the report stated, "Efforts to ease labor market rigidity are needed so that workers can move to industries where they can utilize their majors through job changes," and "From the company’s perspective, it is necessary to alleviate the major mismatch problem and expand human capital through retraining of workers."