Friday, August 22, 2014
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South Korea’s Feminine Future

SEOUL – Over the last half-century, South Korea has made considerable economic progress, with per capita income increasing from a mere $80 dollars in 1960 to more than $22,000 last year. But its potential for sustained growth is faltering, owing to the imminent decline of its working-age population – projected to fall by 25% by 2050 – and rising competition from China and other emerging economies. In order to improve its prospects, South Korea must pursue economic reform and restructuring, with an emphasis on maximizing its human-capital resources – especially women.

South Korea’s success over the last five decades owes much to the rapid growth of its well-educated labor force. From 1960 to 2010, the share of adults with a secondary education soared from 20% to an impressive 87%. By boosting productivity, increasing returns on investment, and facilitating technological adaption and innovation, South Korea’s abundance of well-educated workers has served as the foundation for its export-oriented development strategy.

But women remain underutilized, to the detriment of the entire economy. Indeed, any effective South Korean growth strategy must create more and better economic opportunities for women, in part by establishing more accommodating working environments and instituting a more diverse and flexible education system.

To its credit, South Korea has built a relatively gender-equal society. The gender gap in enrollment in both secondary and higher education is very small; and women’s access to elite positions in law, medicine, and the civil service has increased considerably in recent years. The country elected its first female president, Park Geun-hye, in 2012.

But a significant gender gap remains in terms of the return on human capital. According to OECD data, only 55% of South Korean women aged 15-64 are in the labor force, compared to an average of 65% in the advanced economies. South Korea’s male labor-force participation rate, by contrast, stands at about 77% – close to the OECD average of 79%.

Women who have completed secondary or tertiary education are more likely to enter and remain in the labor market than their less educated counterparts. The labor-participation rate for women with post-secondary education is 64%, far exceeding the 35% rate for those with only a primary or middle-school education.

But, even for South Korea’s most highly educated and capable female workers, child rearing is a major career obstacle. In fact, South Korean women participate in the labor force at roughly the average rate for the OECD while they are in their late twenties. The problem is that the rate drops sharply from 71% to 57% among women in their 30’s, as inflexible working environments and a lack of affordable childcare undermine their ability to continue investing in their careers.

The good news is that Park’s government is working to change this. Indeed, its three-year plan for economic innovation, announced in February, aims to raise the female employment rate to 62% by 2017, through the provision of affordable, high-quality childcare facilities and expanded paid parental leave, among other measures.

But it is less clear how the government will create additional jobs for women. It could, for example, split full-time jobs into multiple part-time positions, and offer incentives for workers to reduce their hours. But, given that South Korea’s workforce already includes a substantial share of non-regular workers, increasing temporary employment may not contribute to economic growth.

A better approach would entail creating high-quality jobs in modern service industries. As it stands, while the services sector accounts for more than 70% of employment in South Korea, its productivity-growth rate remains much lower than that of the manufacturing sector. Too many people are working in traditional, low-productivity service industries, such as wholesale, retail trade, and restaurants, leaving modern, high-productivity services like communications, health, financial intermediation, and business services underdeveloped.

It is also important to narrow the mismatch between women’s abilities and their career paths. The current system tends to reinforce gender roles, encouraging children to follow culturally framed paths, instead of nurturing their individual interests and potential.

For example, female university students are much more likely to study humanities than the so-called “STEM” subjects (science, technology, engineering, and mathematics) – key drivers of productivity gains, innovation, and economic growth. Efforts by primary and secondary schools could help to foster more diverse interests among female students, giving talented young women the tools they need to make important contributions to key economic sectors.

Of course, the potential of educated, empowered women to drive sustained economic growth is not limited to South Korea. Japanese Prime Minister Shinzo Abe, too, has identified increased female labor-force participation as critical to efforts to revive his country’s long-dormant economy.

In South Korea, Japan, and elsewhere, developing and maximizing women’s potential will require comprehensive education and labor-market reforms, as well as structural change, particularly on the services side of the economy. The question is whether political leaders are ready to back their lofty pronouncements with decisive action.

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  1. CommentedMichael Hennigan - Finfacts

    Along with Japan, South Korea has over 30% of the workforce in low-paid temporary positions and last year a McKinsey report highlighted the squeeze in middle class income.

    South Korea’s largest industrial corporations have continued to grow rapidly, but mostly in new global markets; their domestic employment has fallen by 2% annually for 15 years, leaving job creation to small and medium-sized enterprises (SMEs) and Korea’s underdeveloped service sector, where wages are just 55% of manufacturing pay.

    Spending on housing and education have soared. The median price for a home in South Korea is 7.7 times the median annual income—more than twice the US multiple. South Koreans also pay much more to finance their home purchases because low loan-to-value limits often force homebuyers to seek supplemental, high-interest loans.

    There is an "arms race" in education spending and spending on private education is extremely high as well (around 9% of GDP) because South Koreans believe admission to a top university is the only path to success for their children.

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