The declining return to education spending in South Korea

This spending, however, no longer yields rich returns. Going to university racks up tuition fees and keeps young people out of the job market for four years. After graduation it takes an average of 11 months to find a first job. Once found, the jobs remain better paid and more secure than the positions available to high-school graduates, but the gap is narrowing. The McKinsey Global Institute reckons that the lifetime value of a college graduate’s improved earnings no longer justifies the expense required to obtain the degree. The typical Korean would be better off attending a public secondary school and diving straight into work.

If the private costs are no longer worthwhile, the social costs are even greater. Much of South Korea’s discretionary spending on private tuition is socially wasteful. The better marks it buys do not make the student more useful to the economy. If one student spends more to improve his ranking, he may land a better job, but only at the expense of someone else.

Even in terms of a signaling model, it seems this spending has gone too far.  And indeed this is showing up in the numbers:

The proportion of high-school graduates going on to higher education rose from 40% in the early 1990s to almost 84% in 2008. But since then, remarkably, the rate has declined (see chart 2). South Korea’s national obsession with ever higher levels of education appears to have reached a ceiling.

The article, from The Economist, is interesting throughout.

Comments

Whoa whoa whoa, slow down there, Tyler_Cowen. I thought that going to college refines you into being a better person due to the ultra-stimulating environment it provides for you? How could that ever be too expensive to be worth blowing several years of income you don't have at a young age???

right. because if that hotbed of innovator's ferment Silicon Valley has taught us anything, it's that, free of government competition, there are just gushers of private capital eagerly waiting for businesses like Facebook and Twitter to employ lots and lots of people.

I went to university when only about 5% of the British population did, and even then there were obviously some people there who lacked intellectual interests. That was OK if they were doing vocational degrees such as law or medicine, but what they were doing in the Faculty of Science or Faculty of Arts was a mystery to me. Still, the taxpayer was paying, and there were lots of attractive young people of the opposite sex.

Funny, and I though I went to college so I didn't have to hang with tatooted, smelly people who have greasy hands, and a constant cough from working in a smokey office.

(and yes, the hipster references are deliberate)

Wanna bet that this will not be appearing in GMU's South Korean brochure to attract students to the new GMU Korean school?

On the otherhand, if North Korea ever implodes, think of all the low wage workers that South Korean firms could employ, making the choice of not going to school a bad one, given the change in circumstances.

You mean supply and demand applied to the credential market too? Unpossible!

84% is a surprisingly high figure. It speaks to a desire to get ahead, but not knowing another route. So if college was previously viewed as a way to differentiate, better, and advance yourself - but no longer works - what replaces it? What, if anything, replaces college presuming credentials and signalling are necessary?

There really isn't another route to get ahead in South Korea and that's a major problem

More college, of course, i.e. graduate school.

The South Korean education system is not popular in South Korea. Even their $4 million teacher has gone on record as saying he prefers the Finnish system.

Here in California, Korean educational culture is having a significant impact on American educational culture.

A credential that 84% of people can attain doesn't signal much at all. Surely academics especially would have figured this out.

Yep, lots of socially wasteful spending. Which means there's some low-handing GDP-growth fruit to be picked by discouraging marginal students from attending college.

Which is so opposed to everything the system has been telling us for years that no one knows how to deal with that problem. I predict lots of socially wasteful spending inertia. It's like when Singapore spent so many years trying to discourage procreation that it now has profound difficulty in convincing its educated women to have even one child. Yes, that problem is very widespread, but so were the cultural discouragements. Singapore was just a little more directly interventionist than the passive reliance on norm-modifying institutions of the developed countries.

Are there any readers of this blog with children ages 16+ who have encouraged their children to skip college, due to declining rates of return on U.S. college degrees (still net gain to completers but heading in the wrong direction)? This is the sort of advice that is good for other people's families.

I am one. My second son was not a good student and he hated school. He is now working as a plumber. He works for a guy about 30 years old who also skipped college and is now quite wealthy, he owns a home, a couple of apartments, a plumbing business, 3 trucks and has not debt.

Good choice. If he's a plumber in DC, historically he would have made a lot of money. They don't call them Dr. Plumber for nothing. I think you are from Florida, which probably is less white-collar and more can-do than inside the Beltway. ...ah, Google this: "drplumberflorida.com" interesting.

As for Korea, perhaps since they specialize in high-tech, which arguably calls for more education, then 40% to 84% is OK. In the USA (which does not collect these stats, but Googling found an estimate) the percentage is 25-35%.

BTW Bloomberg's BusinessWeek had a recent article that implied the opposite of this Economist article on chaebol jobs which states "chaebol jobs are good jobs, but as far as South Koreans are concerned, most good jobs are still chaebol jobs", saying that in recent years non-chaebol jobs were vogue, but the pendulum is swinging back to chaebol jobs. Oh well, another case of journalist articles being too clever by half, trying to anticipate trends maybe, or maybe just wrong reporting.

The final paragraph of the Economist article reads:

Not all chaebol jobs are good jobs, but as far as South Koreans are concerned, most good jobs are still chaebol jobs. Will that remain true?

Given the similarity of the phrasing, I'd speculate the Bloomberg quote was drawn from the same source, with Bloomberg having botched theirs. Bloomberg's version doesn't make a whole lot of sense anyhow, as the "but" implies a contrast, but the two clauses seem to be reinforcing each other.

Not at all. Some people are in fact self-aware enough to realize when their children are inferior and unable to compete in college. Not every parent is an idiot.

Really depends on the student. If your kid is bright, interested in a field that's likely to lead to gainful employment and is admitted to a good school (or to a moderately-good school with a fat scholarship that covers all or most of the cost) then the calculus tips heavily in favor of attending college.

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