Technological Progress and Youth Employment in South Korea

ABSTRACT

This paper analyzes the extent to which technology progress and youth employment are related. In doing so, we divide workers into two groups – young workers and old (prime-aged) workers - and then estimate the elasticity of substitution between (physical) capital and workers à la Jaimovich et al. (2013. “The Demand for Youth: Explaining Age Differences in the Volatility of Hours.” American Economic Review 103 (7): 3022–3044) by using the Korean labour market data between 2000 and 2014. Our findings indicate that the elasticity of substitution is greater (or at least not smaller) for young workers than for old workers.

KEYWORDS:

• Labour demand
• technological progress
• youth employment
• Korean economy
• elasticity of substitution between capital and workers

JEL Classification:

• J23
• J13
• O33

Acknowledgements

We are grateful for helpful comments from the Bank of Korea Seminar. We also thank anonymous referees, Namju Kim, Taesu Kang, Byungkwun Ahn, and Wook Sohn for their detailed comments and suggestions. Shim and Yang acknowledge the financial support from the Bank of Korea. The views expressed in this paper are those of the authors and cannot be taken to represent those of the Bank of Korea.

Disclosure Statement

No potential conflict of interest was reported by the authors.

Notes

1 See Acemoglu (2002), Acemoglu and Autor (2011), Autor and Dorn (2013), and Shim and Yang (2018) among others.

2 In Table 4 of Jaimovich, Siu, and Pruitt (2013), the estimated capital elasticity of young workers is 3.3 while that of older workers is 1.2.

3 In this paper, we interchangeably use old and prime-aged workers since prime-aged workers are relatively old to young workers aged 15–29 years.

4 Data for 2010 are unavailable since the Mining and Manufacturing Survey was not conducted for the year. Instead, the Economic Census, a quinquennial survey for all establishments with at least one employee that are doing business, was conducted.

5 We refer to the official website of Statistics Korea for the detailed explanation of each statistics: Mining and Manufacturing Survey (https://meta.narastat.kr/metasvc/index.do?orgId=101&confmNo=101009&kosisYn=Y), Survey of Labor Conditions by Employment Type (https://meta.narastat.kr/metasvc/index.do?orgId=118&confmNo=118020&kosisYn=Y).

6 The target population is approximately 70,000.

7 See Table A1 in Appendix A for the detailed industry classification used in our paper.

8 Therefore, we limit our empirical analysis to the manufacturing sector. To expand our sample to service sector, we need to use data of total capital that include property. However, it is difficult to assume that the elasticity of substitution between property capital and labor differs across generations. Therefore, we only examine manufacturing sector of which the data for the capital (equipment) is available.

9 In Jaimovich, Siu, and Pruitt (2013) using the U.S. data, the estimated $\sigma$ is 0.662 and $\rho$ 0.201.

10 In mathematical terms, $Y=\mathrm{m}\mathrm{i}\mathrm{n}\left\{H^o,H^Y+K\right\}$.

11 It is possible to conduct additional robustness checks by constructing time series database as in Jaimovich, Siu, and Pruitt (2013). However, we have only 33 observations from 1983 to 2016 if we limit our sample to manufacturing sector. If we expand our sample to the entire sectors, data for equipment capital is not available. Therefore, we focus on the estimation scheme that uses industry variations.

12 Official data are available from Statistics Korea webpage: http://kosis.kr/statHtml/statHtml.do?orgId=118&tblId=DT_11806_N000&conn_path=I3.

13 The OLS results are available upon request.

14 The share of male employees in our sample is 75%.

15 See Table B1 in Appendix B for the details of how we classify occupations into three.

16 The number of observations in each occupation group varies because routine and non-routine manual occupations are not observed in several industries.

17 As discussed in Shim and Yang (2018), the effect of ICT capital on labor demand can be different from that of non-ICT capital on labor demand.

18 According to a survey by Incruit Corporation, a Korean internet company that provides a marketplace for job seekers and companies, 75% of recruiters working for small and medium sized firms prefer experienced workers to freshers when the economy suffers downturns. Source: https://news.v.daum.net/v/20081103085715784.

19 As of 2017, the share of workers for the small and medium sized firms (less than 300 employees) amounts to 90%. Source: Statistics Korea, Employment by size of firms.

Additional information

Funding

This work was supported by Bank of Korea.