Changes in Wage Differentials Among College Graduates in South Korea, 1999-2008 (Eunmi Ko) 103
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Changes in Wage Differentials among College Graduates in South Korea, 1999-2008 (Eunmi Ko) 103 勞 動 經 濟 論 集 第34卷(1), 2011. 04, pp.103~138 ⓒ 韓 國 勞 動 經 濟 學 會 Changes in Wage Differentials among College Graduates in South Korea, 1999-2008* 1) Eunmi Ko** This paper examines the changes in relative wage of top 10 college graduates to the other college graduates among the age group of 26-28 years using Korean Labor and Income Panel Study (KLIPS). From 1999 to 2008, the wage differential between top 10 college graduates and the other college graduates increased in South Korea. This wage differential seems to persist along with their age. Within industry wage differential among college graduates also rose but in the late 2000s it became smaller than the wage differential within firm size and industry. Increase in elite college wage premium has led to recent changes in college wage premium. - Key words: elite college wage premium, college graduates, wage differentials, relative demand for skilled workers 논문 접수일 : 2011년 2월 16일, 논문 수정일 : 2011년 4월 8일, 논문 게재확정일 : 2011년 4월 12일 * This paper is based upon my M.A. thesis at Seoul National University. I heartily thank Professor Chulhee Lee and two anonymous reviewers for helpful comments and suggestions. I am grateful to Professor Daeil Kim, Professor Bonggeun Kim, the commentators of the graduate student session in KEA joint conference and participants in the Seoul National University — University of Wollongong joint workshop. Also I am thankful to Professer Soyoung Kim and Professor Jae-Young Kim for encouragement. All remaining errors are my own. Financial support was provided by Brain Korea 21 program. ** Ph.D. candidate, Department of Economics, Seoul National University, Seoul, South Korea. ([email protected]) 104 勞動經濟論集 第34卷 第1號 Ⅰ. Introduction Changes in the wage differentials, particularly focusing on the relative wage of college and high school graduates, and the fundamental causes of these changes have been studied by numerous researchers in South Korea.1) It is well documented that the college wage premium in South Korea decreased from the 1980s to the mid-1990s and subsequently began increasing from the late 1990s.2) In other words, the wage differential between college and high school graduates fell and turned to rise during the late twentieth century, thus forming a U-shaped curve. Many researchers have explained these changes in the framework of relative supply of and relative demand for college graduates as more skilled workers. More rapid growth in the relative demand for college graduates than relative supply of them has been found to be the primary factor for the increase in the college wage premium in the 2000s.3) However, it has been reported that since the mid-1990s, most of the high school graduates in South Korea entered colleges (see Table 1). Owing to this sharp increase in the college entrance rate, in the late 2000s, approximately 80 percent of the young 1) The extensive research on the fluctuations in college wage premium -the wage differential between college graduates and high school graduates- in the United States appears to have influenced these studies in South Korea. However, the economic environments of the two countries are different. For example, according to the Ministry of Strategy and Finance of South Korea, South Korea’s dependence on foreign trade was 82 percent in 2009. Therefore, the discussions for South Korea are distinguished from that of the United States. One class of South Korean researchers believes that globalization (particularly, extensive trade with China), rather than skill-biased technological change (STBC), was the primary reason for the recent increase in the college wage premium in South Korea. For more details, see section II of this paper. 2) See Choi and Jinho Jeong (2003), Choi and Jinook Jeong (2005), Shin (2007), and Wooyoung Kim (2008). It appears that there continue to be disagreements regarding the precise turning point when college wage premium began increasing during the 1990s. 3) Numerous explanations for the fundamental causes of these shifts are suggested in the studies conducted in South Korea as well as in the United States. Section II briefly presents these explanations of preceding research. Changes in Wage Differentials among College Graduates in South Korea, 1999-2008 (Eunmi Ko) 105 potential workers with 1- or 2- years of experience were college graduates (including 2-year college graduates) and approximately 35 percent were 4-year college graduates (see Table A.1 and Table A.2). Reflecting this increase in the supply of college graduates, South Korea’s labor market of young workers was almost entirely composed of college graduates in the 2000s.4) Based on this phenomenon, it seems that different mechanisms, such as “whether graduating from elite college or not,” must operate in a labor market of young workers in order to distinguish the “more skilled” from the “less skilled” among college graduates who recently enter the labor market; thus leading to increasing the wage differentials among college graduates. In other words, for the young workers who enter the labor market, it is hypothesized that upward shifts in the relative demand for “more skilled and more educated” young workers favor only the elite college graduates and do not influence the other (non-elite) college graduates. Although there are numerous studies on the changes in college wage premium and some studies on the wage differential between elite college and the other college graduates in the view of cross-section, there exists no research on the changes in the wage premium of elite colleges in the view of time series5) and no study that focuses on the relative demand for elite college graduates. The limitations of the data might contribute to keeping researchers from the further studies about the wage differentials among college graduates. In this paper, I made the data which is comparable to 4) This kind of labor market for young workers, however, is not the case in the United States. According to the US Census Bureau, the proportion of 2-year college graduates and the higher educated in the United States was approximately 40 percent of the total population in the age group of 25-29 years. See “Educational Attainment in the United States: 2009 Current Population Survey” (http://www.census.gov/hhes/socdemo/education/data/cps/2009/tables.html). 5) The concept of elite college wage premium indicates the wage differential between the elite college graduates and the other college graduates in same industry and firm size. There are a variety of terms, such as “wage premiums for elite colleges” (Taejong Kim, 2004), “returns to university rank” (Jang, 2006), and other expressions, that have previously been used for representing similar wage differentials. Since “college wage premium” implies the wage differential between college and high school graduates, it is assumed that the term “elite college wage premium” is appropriate for expressing the elite and the other college graduate wage differential. 106 勞動經濟論集 第34卷 第1號 repeated cross-sectional one using longitudinal data and overcame the limitation; in detail, I took surveys from every three years (four times among ten year longitudinal survey data) and grouped individuals into the cohort of 26-28 years so that I could investigate different (not overlapped) cohorts in the each chosen (three year interval) survey. From this data it could be obtained that individuals' educational attainments, the college names who graduated from (if one did), and their real wages in order to analyze the wage differentials among workers who had nearly just graduated from their (4-year) colleges in the respective investigated year. First, I present that the elite college wage premium of young workers, who are in the age group of 26-28 years, increased from 1999 to 2008 in South Korea; the elite college wage premium for them rose from 3.82 percent to 23.0 percent during the 1999-2008 period. Second, I describe that the increase in the elite college wage premium were driven by the growth in the relative demand for elite college graduates <Table 1> Changes in College Entrance Rates College Entrance Rates 1995 51 1996 55 1997 60 1998 64 1999 67 2000 68 2001 71 2002 74 2003 80 2004 81 2005 82 2006 82 2007 83 2008 84 2009 82 * Source: Yearly Report for Statistic on Korean Education (retrieved from Center for Education Statistics [cesi.kedi.re.kr] on Nov. 2010) Changes in Wage Differentials among College Graduates in South Korea, 1999-2008 (Eunmi Ko) 107 by examining the relative wage of the top 10 college graduates to the top 14-50 college graduates.6) Third, I show that this relative wage rose along with their age. Moreover, it is indicated that the increase in the elite college wage premium played an important role in the rise of college wage premium throughout the 2000s. The paper is organized as follows: Section II documents the conventional results of the preceding research on the changes in the college wage premium in South Korea; they shows that the relative demand for the more skilled (more educated) have grown since the late 1990s. Section III describes the data from the Korean Labor and Income Panel Study (KLIPS) that has been used throughout the paper. Section IV presents the analyses of changes in the relative wages of top 10 college graduates in South Korea during the 1999-2008 period and indicates how the changes in the elite college wage premium lead to the increase in the college wage premium. Section V summarizes the conclusion. II. An Overview of Preceding Research In South Korea, a number of researchers have studied on the wage differentials by educational attainment.