Lessons from Japan’s tunnelAt the end of the movie Tunnel, the hero played by Ha Jung-woo became extremely nervous when he entered a tunnel, because of the trauma he faced from being trapped inside a tunnel for more than 30 days. Even people who have no such experiences often feel nervous in tunnels because of the darkness and dampness. And we become insecure, when we face a second tunnel after moving out from the first one. That was the situation with the Japanese economy.
It was not always bad. It did fine from 2003 to 2007, although it fell during the global financial crisis. Entering a tunnel after escaping one was repeated. In other words, economic recession became a part of daily life. The Japanese people, then, knew how to prepare for a crisis, even when the economy was good, because they worried that it would become slow again. Slow consumption became a long-term phenomenon. The people did not want to spend for fear prices will drop further. The Japanese economy was abandoned for 20 years because the people gave up and became lethargic.
An economy alternates between boom and recession. That is why we believe things will get better soon, although it may be tough now.
But the Japanese economy had no such anticipation. The Korean economy is not very different. It is repeatedly entering a tunnel when the situation seems to get better. It’s because the people increasingly believe that another deep, dark tunnel will soon emerge before them.
Lethargy and despair are also spreading.
Youth unemployment has no clear resolution. Experts urge young people to find jobs overseas, lower their standards to join small firms and start their own businesses. In other words, they urge them to face reality and find their own way to survive.
Japan also has had serious youth unemployment. After the economic recession of the 1990s, youth unemployment rapidly grew worse. The unemployment rate for workers ages 25 to 29 used to be about 2 or 3 percent, but the figure rose to 4.3 percent in 1995 and 6.2 percent in 2000. The situation was similar for the workers ages 20 to 24.
Korea’s youth unemployment rate also radically escalated starting in 2014. The unemployment rate for the populations between ages 25 to 29 is 8 percent, and the group ages 20 to 24 increased to 10 percent.
This year, the youth unemployment rate for the group aged between 15 to 29, grew worse to hit a double-digit figure. The rapid worsening of the situation was caused by two main reasons.
First, the youth population grew. Although the number of people ages 20 to 29 decreased starting in 1994, the number actually went up starting two years ago. The same applies for the group ages 25 to 29. The number continuously decreased starting in 1999 but saw an increase this year. The change in the trend was caused by the “echo generation,” the offspring of the baby-boomers. For the next four to five years, an average of 200,000 young people will enter the job market for the first time.
The second reason is the extended retirement age, which started this year. Although the extension was unavoidable in this aging society, the issue was the timing. Unfortunately the extension started this year, when the youth population also grew. As the retirement age is extended, jobs availability will decrease. Because the benefits of the retirement age extension are largely concentrated in the public sector and regular workers for conglomerates, the reduced supply of good quality jobs become an even more serious issue.
It is clear that the youth unemployment rate will be higher than 10 percent this year, the highest ever. In the next few years, the issue will become extremely serious. The government and the established adult generation implemented a job policy that is beneficial to us, while asking youngsters to find their own resolutions. This is wrong.
In the late 2020s, youth unemployment can be eased. Japan is the classic example. The economic growth rate is higher in Korea but the youth unemployment issue is less serious in Japan because the population declined.
When Korea’s youth populations drops in a decade, the unemployment issue will be resolved, some argue. The argument is reasonable, but we cannot jump to a conclusion, because Korea is not Japan.
Even if the argument is viable, what will we do in the next decade? Do we want to follow the footprints of the Japanese youth, who crumbled due to the “lost decades”?
The youth unemployment issue of Japan in the past now has become a long-term unemployment issue, because the workers failed to be trained and accumulate experiences while they were young. The policy of offering more non-regular jobs to increase the number of jobs and the low birth rate also contributed to the situation.
Korea’s youth unemployment rate is far higher than that of Japan. We will, naturally, face a more serious problem in the future.
How can we avoid following Japan’s footprint? The answer is labor reform. To this end, unions of regular workers and conglomerate employees must make concessions. A mandatory quota of youth employment and reduction of work hours must be implemented to share jobs. The wage peak system must be adopted and irregular jobs must be reduced while more regular jobs are offered. Instead, the protection of the regular workers must be eased.
The measures, of course, will be a burden to the business community. They are also against traditional economic theory. But now is not the time to think about such problems, because youth unemployment is extremely serious.
Furthermore, conglomerates have the power to pay for more wages, taking into account the portion of corporate income in the gross national income. The government must make youth unemployment a top priority. It must not allow the goodwill of companies to make the decision.
Unconventional fiscal and monetary policies have shown effectiveness recently, and employment policy is not an exception. If the situation continues, in a matter of time, Korea’s generational conflict will explode, ruining the entire economy.
JoongAng Ilbo, Sept. 9, Page 28
*The author, former editorial writer for the JoongAng Ilbo, is an adviser at the Korea Institute of Finance.