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Korea Institute of Public Finance
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실업의 원인과 재정에 미치는 장기효과
- 청년실업을 중심으로 - cover image

실업의 원인과 재정에 미치는 장기효과 - 청년실업을 중심으로 -

Keyword
실업률, 소득세, 인적자본개발
Title
실업의 원인과 재정에 미치는 장기효과
- 청년실업을 중심으로 -
Authors
원종학; 김종면; 김형준
Issue Date
2005-12-01
Publisher
KIPF
Citation
pp. 197
Abstract
We examine unemployment patterns in Korea since the Asian financial crisis of 1997, focusing especially on the troubling recent rise in youth unemployment. Our findings are developed in the three main chapters of this report.

Chapter II examines structural changes in unemployment patterns since 1997. We find that unemployment figures have subsided from the sharp peaks that marked the crisis, but have not quite fallen back to pre-crisis levels. While this pattern was found to hold for all age groups and education levels, younger workers aged 15~29 clearly suffered a disproportionately severe loss. We also find that post-crisis shifts in the Beveridge and Phillips curves are consistent with the view that structural changes in the labor market underlie the observed overall increase in unemployment.

Focusing on youth unemployment, Chapter III considers the long-term costs that persist beyond a young person's jobless experience. We argue that since on-the-job learning-by-doing is crucial to a young worker's human capital formation, prolonged unemployment is likely to result in a permanent downward shift of a young unemployed person's lifetime age-income profile, even should she return to work eventually. We estimate that the present discounted value of the worker's future stream of such income loss comes to roughly 200 million won. From the government's viewpoint, the corresponding loss in tax revenues, reflecting the differences between the potential high and actual low income paths, amounts to 15 million won throughout the person's working lifetime. If this result applies to even 10% of the unemployed youth in Korea, currently estimated to be 400,000, the total loss for the economy would amount to 8 trillion won, or roughly 1% of GDP, which in turn costs the government 600 billion won in lost tax revenues. This makes a strong case for government "investment" in programs designed to facilitate young unemployed persons' return to work; both individual workers and the economy as a whole can reap substantial benefits from such government programs, whose fiscal impact can be neutral or even positive as long as initial program expenditures remain below the anticipated higher future tax revenue stream.

Chapter IV turns to a more analytical inquiry into a possible cause of the structural increase in youth unemployment, focusing on the increasing gap between the salary levels in large and small firms in Korea. We develop a theoretical model that shows a young person may forgo employment in a smaller firm in the presence of wage differentials tied to firm size. Empirical analysis of Korean data supports this hypothesis, and also shows that higher economic growth may also contribute to structural youth unemployment.

On a final note, we wish to emphasize that our investigation into the recent rising youth unemployment in Korea yields results that favor the human capital development approach in unemployment policy over the labor force attachment approach. This is consistent with the labor market policy experience of other developed countries.
Keywords
실업률, 소득세, 인적자본개발
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