Is South Korea in a higher education access trap?

Much of South Korea’s economic and social achievements since the 1960s can be attributed to far-sighted, deliberate and government-regulated education plans and policies that helped transform its occupational structures and prestige.

Yet rapid economic progress has resulted in significant social issues in recent years. South Korea today has the highest suicide rate among all OECD – Organisation for Economic Co-operation and Development – nations, its divorce rate has soared and fertility rates have declined drastically.

In addition, more than half of middle-income households are cashflow-constrained and highly indebted, with declining family savings. These issues can be partially explained by a dramatic increase in spending on private after-school education.

Although South Korea today faces financial constraints at both household and national levels, it has produced one of the most highly educated labour forces in the world by investing heavily in education.

The proportion of those aged between 25 and 34 years old with tertiary education was, in 2015, the highest among 36 OECD countries. This accomplishment is due to education being highly valued in Korean culture and it has been celebrated internationally. But unintended social consequences have long been ignored in Western media.

Reaching the SKY

In Korea, social hierarchy and status are paramount and a degree from one of the top three elite tertiary institutions, namely Seoul National University, Korea University and Yonsei University, or SKY, provides a valuable lifetime network and almost guarantees employment in government or in one of the 63 chaebols (conglomerates).

The traditional gateway to these institutions is the highly competitive national college entrance exam, known as Suneung. Consequently, Koreans today spend a large share of their income on private tutoring academies called hagwons: 83.6% of five-year-olds and 35.5% of two-year-olds attended hagwons in 2016 and total private education spending at all levels amounted to KRW17.8 trillion (US$15 billion) in 2015.

This expenditure is considered excessive given the fact that today chaebols hire fewer workers, wage growth has fallen and youth unemployment has never been so high.

These structural changes in the economy have a significant impact because in the face of high debt, lower wages, fewer high-paying jobs and financial deficits, middle-income families have responded by limiting their family size to one child, which helps them manage costs but has resulted in a very low fertility rate that threatens economic growth.

The educational arms race

Why do families with children engage in an education ‘arms race’, spending large sums of money for a limited number of spots at the highly regarded universities in Korea?

In many respects, the current situation in Korea is surprising. Investment in education has strong external benefits to society. It is therefore expected that the market for education would tend to undersupply this ‘good’; that is, families with children would tend to underinvest in both private and public education for their children.

Instead, Korean families seem to be doing the opposite. This apparent conundrum can be explained by educational complementarities and coordination failures.

Families invest in education to raise their child’s future lifetime income stream. An educated worker’s added income is viewed as a return on the investment of human capital. In a perfect world, families invest in education as long as the expected return is greater than the costs. However, given the declining number of chaebol jobs, together with falling wage growth, the probability of employment in a conglomerate is today lower than in the past.

In addition, more families are investing in increasingly expensive hagwons. These combined factors would predict a reduction in educational investment. This has not occurred. In fact, expenditure has steadily increased.

An inevitable education trap

In South Korea, one household’s decision to invest in private tutoring increases the incentives for other households to make similar investments. The probability of a child’s enrolment in a prestigious university and subsequent high-paying chaebol job decreases as other families send their child to hagwons.

The incentive is thus to send one’s child to a similar programme, or a better, more costly one. Consequently, no family will stop investing in private tutoring as long as other families continue to make such investment.

If all Korean families could agree to cease (or reduce) their hagwon expenses, all of them would be better off. The reduced demand for private tutoring would decrease costs, while probabilities of admittance into a prestigious university and employment at a chaebol would basically remain unchanged.

This would increase the net present value of lifetime earnings for university graduates. It is, however, very unlikely that all families could or would coordinate their educational investment decisions, which is why Korea today finds itself in an ‘education trap’.

What policies might South Korea implement to escape the perils of this education trap?

Strong dissatisfaction with Korea’s educational system and often low English language skills at graduation have encouraged Kirogi migration, where a father, while based in Korea, provides financial support to the rest of the family residing in the United States (or increasingly in Southeast Asia) for educational purposes.

The new Moon Jae-in government has pledged to significantly lower university tuition fees, reduce the importance of SKY institutions’ influence and their significance for job applications. The Moon administration has also vowed to create an additional 810,000 jobs, approximately 20% of which would be in civil service.

We believe that these policies could be a good starting point, if effectively implemented, but we encourage the following additional strategic steps:
  • • Reduce the importance of the Suneung and create alternative entry pathways to reduce families’ incentives to send their child to hagwons or even abroad.

  • • To tackle unemployment and underemployment issues, reduce the excessive reliance on public sector and chaebol jobs and instead develop workplace-oriented vocational training and apprenticeship programmes that would lead to full-time and long-term employment.

  • • Help young jobseekers launch high-growth potential start-ups by expanding Centres for Creative Economy and Innovation. Use such centres to attract international venture capital investments, early stage innovation and social entrepreneurs. Expand concessional tax treatments to incentivise investors.

Dr David Santandreu Calonge is manager, academic development, at the University of Adelaide, Australia, and visiting professor at Sungkyunkwan University, South Korea, where he teaches at the International Summer Semesters. Dr Patrik Hultberg is associate professor of economics, coordinator of educational effectiveness at Kalamazoo College, USA, and visiting professor at Sungkyunkwan University, South Korea, where he teaches at the International Summer Semesters.