Korea Labor Institute (KLI) - Republic of Korea

Founded in 1988, the Korea Labor Institute (KLI) is a non-profit research organization whose mission is to enhance the working lives of people by conducting timely and analytical research on a wide range of labor issues. Key research issues include labor market and employment policy, industrial relations and human resource management, workers’ welfare, and labor laws and regulations. The Institute is also home to two distinguished research centers: the Employment Research Center and the Research Center for Industrial Safety and Welfare.

This research reviewed employers’ investment in developing their human resources, using various methods including surveys, case studies, and raw data analysis. Its main focus is on how employers transformed the way they invested on their employees’ HRD, what the difficulties and obstacles in the investment in HRD, and the causes for those problems are in the rapidly changing VET environment characterized by the progress towards knowledge-based society, the introduction of the Workers’ Vocational Training Promotion Act (VTPA), and the financial crisis. The Chapter II gives an overview on the changing environment of VET in company. It is followed by the Chapter III where theories and researches on VET investment in company are introduced, and in particular theories and analyses on determining factors of the investment on education and training for the employees are documented. The studies on the existing theories and researches illustrated in the Chapter III become the basis for the analyses on the situation, characteristics, and changes of investment of enterprises in Korea on VET.

The employers’ investment on VET precipitated for the sudden changes on corporate management environment brought about by the financial crisis in the end of 1997. The trend, however, reversed during the period of 1999 and 2000. The cause for the reverse is debatable; is it for the institutional changes coming from the enactment of the VTPA or the overall economic recovery? Yet, the limit on the research references failed to clarify the exact cause, although surveys, analysis on the materials and case studies were mobilized for the research.

The research revealed that SMEs having more management difficulties than large companies had poor record in terms of the investment on VET and the implementation of the so-called ‘Workers-initiated Vocational Ability Development Programs’ stressed as a HRD method in the knowledge and information era. Such a low participation in VET by SMEs resulted from the fact that 70% of the workforce of SMEs were involved in low skilled jobs not requiring further education and training. Shortage of workforce, lack of programs, facilities and equipments were indicated as the cause for the inactive training, highlighting the need for the comprehensive support to revitalize training of SMEs. The support for SMEs’ VET must be accompanied with the industrial and financial polices with the aim of turning Korea’s industrial structure into a high-tech one.

What is needed in addition to the financial assistance to revitalize workers-initiated vocational ability development is to give time to workers to develop their capabilities. Such assistance depends on employers to a large extent, which reaffirms the importance of partnership between labor and management. Another finding for consideration in the active push for training is that 2/3 of surveyed workers were not compensated for their training in company, despite a wide recognition on the higher contribution of vocational training in service to increase in productivity than regular education or other training. Notable is the fact that vocational training in company, be it organized by employers or employees, can be effective only when linked with employees’ career development as well as employers’ managerial strategies.

The analyses on the data showed the reduced scale of initial training in company. The reduction of the initial training, though having been favored in terms of assistance, indicates that regulation for initial training must be more adaptable to realities by being tuned into industrial demands. Initial training in company is still important to increase performance of initial training despite the fall in its overall demand.

In summary, vocational training in company has been in better shape since the financial crisis, although consistent efforts to make up for the defaults and problems mentioned above are needed. Meanwhile, issues and suggestions concerning the employer-provide training, the most representative training in company, illustrated on surveys and case studies in the Chapter IV and V, will give good policy implications. They include; financial assistance for training establishment and facilities, increasing trainee allowances for initial training into reasonable level, increasing food and accommodation grants, introduction of special benefits for workers engaged in the so-called 3D jobs, recognition of training costs for foreign industrial trainees, the increased discretion in determining training courses other than standard training, increasing standard of training cost set by occupation, decreased premiums of the Employment Insurance used for vocational ability development programs, and reduction in the administerial regulations such as approval of training plans, minimum requirement training hours for financial assistance, and so on. Some of the issues will be the subjects for review to rejuvenate vocational training in company, and need to be reflected on the process of institutional reform in future.

The problem of youth unemployment, which emerged as a social issue immediately after the 1997 foreign exchange crisis, seems to have been driven by structural and institutional factors, as well as cyclical and attritional ones. In other words, the high youth unemployment in recent years is traceable to the structural change in labor demand in the wake of the financial turbulence, and to the educational system which failed to properly respond to the changing needs in the labor market.

This study is aimed to identify and analyze current trends of the labor market for the youth, focusing on the process of school to labor market transition. The period of transition from school to labor market is very important to young people, because during the transitional period they receive an intensive training and search for their career job and, in the course of such training and job search, their types of labor market participation and income level throughout the working life are determined. Moreover, considering that the fundamental cause of high unemployment among young people lies in the mismatch between school and labor market, an empirical analysis on the school-to-work transition is the most crucial to understand the youth labor market and establish scientific policy measures to tackle the youth unemployment issue.

This study, mainly based on the supplementary survey of youth of the 3rd Annual Survey of the Korea Labor and Income Panel (Study, 2000), describes how young people entered the world of work by getting their first job after finishing school; and how they took root in the world of work with their first and later jobs. It also examines the problems in those processes; analyzes the effect of educational choices in adolescence; and, based on the analysis, suggests the ways to facilitate a smooth transition from school to the world of work.

It takes long for young people in Korea to acquire their first job, after they finish school. What is worse, as a consequence of joblessness during the transitional period, the percentage of idle manpower is at a seriously high level. Only 60.1% of the young people who graduated from school got their first job within 6 months from graduation, and 22.7% waited 2 years or longer before finding their first job.

This study estimates the hazard rate to employment, in relation to the duration of non-employment (transitional period), that is, the time it takes for young people to find the first job after finishing school; and analyzes the factors affecting the non-employment duration of youth. The analysis shows that the hazard rate to employment has a negative duration dependence. That is to say, the longer the non-employment duration gets, the lower the probability becomes. In addition, it is revealed that the time it took for the graduates in the post-crisis period to get the first job is longer than the time consumed by the graduates in the pre-crisis period. This finding indicates that the 1997 financial difficulty adversely affected young people in finding their first job. Besides, the effect of educational attainment on the duration of joblessness was not significant before the economic crisis, but is apparent after the crisis. This means that the low educated were hit harder by the economic crisis than the higher educated.

The negative impact of youth joblessness is serious in the mid and long term, as well as in the short term. In this light, proactive and preventative measures are required to shorten the duration of youth joblessness to the minimum.

Young people in Korea experience job instability, even after they enter the labor market. That is, in the process of taking root in the world of work, they go through jobs of a relatively short period of work, unstable employment and a highly frequent change in career. Approximately one forth (1/4) of the young graduates moved from their first job within 1 year from graduation from school; about half of them stayed in the first job 3 years later; and only 38.1% remained in the first job 5 years later. To sum up, the job mobility among young people is very high.

In order to find out whether such frequent movement in the initial stage of working life must be interpreted as a course of productive job shopping or has an adverse effect on their working life in the long term, this study analyzes what effects the experiences in the processes of entering the labor market and settling down in the world of work will have on the wage level in the later working life.

The result of the analysis shows that the length of the transitional period from school to the first job has a negative relationship with the wage level, although the experiences during the process of labor market entrance have only a slight effect on the wage. This result confirms that prolonged joblessness continues to have a negative impact, by undermining creation of productive human resources with accumulated job experiences.

In addition, it seems that the experience of instability in the process of taking root in the world of work also has an adverse impact throughout the working life. The frequency of labor mobility has a negative relationship with the wage level in later life, which implies that the frequent movement from job to job in the initial stage may not be on the way to a better job and higher pay. Above all, experiences of non-standard employment tend to have a significantly negative relationship with the wage level. The finding that an early experience of unstable employment by labor market entrants continues to affect adversely their working life indicates that the government policy of short-term job generation cannot address successfully the problem of youth unemployment, without a proper program of career development. In particular, given that the instability of the labor market entrance process is attributable to the mismatch between school education and the needs in the world of work, educational reforms should be made to reinforce the link between the school and labor market and, at the same time, an institutional framework should be established to facilitate a seamless transition from school to labor market.

This study examines what effect the individual choice in education level and contents has on their wage in the labor market, with a view to identifying the implications and problems the widespread pursuit of higher education in Korea.

It is revealed that the wage effect is very high among college graduates, who benefit from the high sheepskin effect. The wage premium of college graduates is also very high, regardless of their age; whereas the wage effect of two-year college graduates is sharply reduced among the youth. Meanwhile, there is almost no wage premium among those who dropped out of the colleges (including 2-year colleges) or finished the college course but without the degree.

Meanwhile, it is found that neither department in high school nor major in college has any noticeable wage premium. The fact that their different curricula are not a major determinant of wage amounts is an indication that the existing education system fails to produce proper human resources and employers think highly of only those with a good knowledge in general areas.

Scores of the college entrance exam and the five prestigious universities hold a high wage premium and have a continuing effect on wage, regardless of age. This finding, along with little wage gap between workers of different majors; social discrimination against college dropouts; almost no wage effect of the colleges located in the Seoul metropolitan area (when scores of entrance exam are controlled); and the weak effect of college graduation on income of the self-employed, suggests that the education system in the nation serves to select those with an outstanding intelligence or knowledge, rather than bringing forth competent human resources as workforce. In order to ensure that high investment in education is a source of consistent growth of the economy, it is required that the emphasis in the role of education should be shifted from the selection to the creation of high-quality human resources.

First of all, the existing policy to address youth unemployment should be redesigned to increase efficiency in preventing the prolonged non-employment of the youth and assisting them with building a developmental career. At the same time, considering that the problem of youth joblessness reflects a structural shortcoming in transition from school to the labor market, a nationwide framework should be created to increase cooperation and interactions between school and the labor market.

The youth unemployment policy should not be confined to short-term goals. Rather it needs to be geared toward promoting work experience and employability of the youth, which certainly will be a substantial contributor to their success in locating a durable job. In addition, for a successful implementation of specialized youth programs, it is necessary to relate work experiences to education and training and to provide customized and intensive services of job guidance and placement, as in the New Deal Program of the United Kingdom.

Meanwhile, it should be clearly understood that short-term measures to tackle youth unemployment are not sufficient to reduce youth non-employment. Furthermore, the collaboration between school and the labor market should be reinforced and the systems that can facilitate the school-to-labor market transition should be established. To this end, several action plans are suggested. First, in order to address the mismatch between education and industrial needs, which is a result of the cut-off between school and industry, employment rates by school and major should be identified and published and more emphasis should be placed on rating competitiveness and performance of individual schools to induce the schools to diversify and specialize their curricula. Second, collaboration between school and industry should be strengthened so that schools can keep themselves updated with changing needs in the industry. For this purpose, schools and companies need to work together in planning and implementing educational curricula, and youth internship programs should be expanded to increase students’ opportunities for work-based learning. Third, the existing school systems, including the semester structure and vacation periods, need to be adjustable to expand the opportunities for work-based learning, work search and career building. Fourth, in order to assist students with selecting jobs and careers, it is required that vocational guidance in school should be emphasized and the connection between schools and public employment services should be strengthened. Last, but not least, data and information on the development, use and distribution of human resources should be built up into an integrated information system that can send a right signal to the education market, which, in turn, can create an educational system that properly responds to the industrial needs.

Since the 1997 economic crisis, Korean companies have gone through reforming changes in human resource management. A typical example of the changes is the trend of meritocracy and professionalism, which are characterized by introduction of redundancy dismissal, merit pay, incentives and positive outsourcing. Many HRM experts observe that the HRM practices in Korea are quite close to global standards in that workers’ pay is highly related to their performance and competent workers are free to move to another company offering higher pay. Accordingly, the experts stress, both employers and employees must be ready to adapt to the changing standards to survive in the competitive market.

However, will these sudden and fast changes in HRM strengthen the corporate competitiveness? In order that the performance-based schemes result in better performance of employees, simultaneous efforts should be made to improve work competency of the employees. With no improvement in work competency, better performance cannot be expected form the workers. A headlong rush to performance-based schemes, not accompanied by any competency building program, might end up only with a short-term improvement in worker performance, at the expense of the strength of long-term growth. Similarly, in conducting redundancy dismissal or using the contracting-out or outsourcing system, improving competency of the entire workforce of the company should be taken first consideration. Unless resources are directed toward improving competency of the workforce, which can be safely said to be ‘software’ of the company, the expected high performance will not be a realized even when the company succeeds in structural adjustment.

This study is aimed to examine how the competency-based HRM can be successfully applied to Korean companies. To this end, the study describes what the term ‘competency’ means; and how the competency-based HRM can be used as a new solution to the companies that are grappling with human resource management. In addition, it shows the examples of the Korean companies that have already replaced the traditional personnel management system with the competency-based HRM, along with an analysis on those examples.

At the moment, more and more companies in Korea show a growing interest in competency building. It should be noted, however, that the competency-based HRM is not a panacea, just as in cases of other new business innovations. What is important here is the ability to adapt the innovative idea to the particular situations of the company.

All the ranks and files of the company should participate in the process of the competency model development. They must come together to work out a model that best suits the company. The competency model, once developed through company-wide participation and effort, is highly likely to be successful, as the model is based on the understanding and recognition of the employees from the beginning.

EMP/SKILLS - Skills and Employability Department