Human capital matters
The author, former chief economist at the Asian Development Bank and a senior adviser for international economic affairs to former President Lee Myung-bak, is a professor of economics at Korea University.
2022 has begun with hopes for a final end to the pandemic and a return to normal lives. The post-Covid-19 climate is nevertheless foggy. Korea’s growth potential is weakening due to its thinning working population and rapid aging. By 2040, people aged 65 and older would make up 34 percent of the total population, compared to the current 17 percent. A smaller labor force is expected to cause a 1 percentage point fall in the annual growth rate for the next 20 years.
Lives will harden if the Korean economy loses steam. People in their 50s and 60s whose working age had coincided with the double-digit growth period in Korea worry how they will manage after retirement as Koreans’ longevity nears 100. Korea ranks first in its poverty rate for senior citizens among the Organization for Economic Cooperation and Development members. The young in their 20s and 30s vainly seek jobs with growing hopelessness about the future.
Although Covid-19 has afflicted everyone, individuals as well as the nation cannot stop investing in the future for sustainable growth. The most important of all is investment in people. In economics, the term is referred to as investment in “human capital,” which encompasses the values of individuals’ abilities, intelligence, skills and integrity, as well as health. Investment in human capital increases productivity and thus wages. Happiness gowns when income do, and health improves. That depends on individuals’ effort to enhance their capabilities, health and intelligence.
On the national level, an economy grows when human capital is bolstered. Improved labor quality can offset a loss in manpower. If a worker can produce twice the output in the same hour, one individual can contribute two’s share. Enhanced human capital can advance technology and stimulate growth. Scientists will try to develop new technologies when entrepreneurs venture into new fields.
Therefore, the nation must devise efficient policies to improve human capital to raise productivity and innovation. Policies to create human capital in low-income and weak classes will not just help growth but also ease inequalities. Training to help people find better jobs and support for childcare and education can lessen inequalities. Selective investment in human capital contributes to easing inequalities more in the long run with less spending needed on universal welfare.
Investment must go into human capital in a fast-changing age. Digitalization through the convergence of artificial intelligence, the Internet of Things, 5G technologies and big data has been progressing fast. The so-called 4Cs — critical thinking, creativity, communication and collaboration — will be essential with the ability to employ digital technologies. Fast adaption of intelligence for right judgments and an ability to work with others should be trained from childhood.
Korea has the world’s top education rate, but its education and training systems grooming talent are still deficient. Secondary education is entirely focused on getting into good universities, whereas higher education falls short of nurturing creative talents due to uniform programs on campuses. College entrance systems and university curriculum must change to better incorporate convergence education and collaborative work with enterprises. Training should be reinforced so that graduates can quickly adapt to new technologies. Various research show good training can enhance productivity and lower the chance of becoming redundant.
Maintaining and employing human capital is as important as building it. According to data from the Ministry of Education, the employment rate of graduates from four-year colleges and grad schools was 65.1 percent in September 2019 and February 2020 — the lowest since 2011.
The employment rate could have gone lower in the Covid-19 environment. When it takes a long time to land a first job, accumulated knowledge and technology will wane and lessen the possibility of getting a decent job. The Moon Jae-in administration vowed to prioritize job creation, but the results were poor. It has created temporary jobs in the public sector, but did not create lasting jobs in the private sector. As contract workers increased by 1.49 million over the last four years, their share in the workforce rose to 38.4 percent from 32.9 percent.
Due to a wide gap in wages between big and small companies — and by job category — coupled with hierarchic work cultures, the number of companies our young people want to work for are quite limited. The government must remove regulations in the high-value services sector and convergence industries to create more jobs, improve work environments and groom young entrepreneurs to find work in the vibrant start-up ecosystem. The labor market also must become more flexible so that novices can find a job they can excel in and enjoy. Workers should be encouraged to develop themselves to move to different workplaces and fields.
As Korea relied on human labor over the past half century, its future hinges on timely and intelligent employment of talent. For individuals as well as the nation, investment in human capital makes up the very foundation of future prosperity. The incoming government must fix outdated policies and systems to rebuild our policy on human capital.
Translation by the Korea JoongAng Daily staff.