The COVID-19 pandemic has brought sweeping changes to the labor market that will continue to reverberate. During the shock phase in early 2020, millions lost their jobs and unemployment soared. In developing countries, poverty rates jumped, reversing years of progress. Developed countries recovered many lost jobs by the end of 2020, and some now face labor shortages. The churning has changed how people think about work and their expectations of it.
As with the public health side of the pandemic, South Korea offers an interesting insight into how countries might deal with the upheaval in the labor market. Effective mitigation measures helped South Korea keep pandemic deaths and illnesses much lower than other advanced countries. They also helped limit economic and social dislocation. The most negative effect of the pandemic on the labor market is the accelerated pace of small business closures, which leaves many former business owners in debt and struggling to get by.
South Korea experienced extreme labor market turmoil for several years following the Asian Financial Crisis in 1997. The crisis forced the country to turn to the International Monetary Fund for loans to stave off a collapse of the economy. In return, the IMF demanded sweeping economic restructuring that caused a jump in unemployment, particularly among middle-aged workers.
Apart from the reforms demanded by the IMF, the Kim Dae-jung administration instituted programs aimed at training the newly unemployed for new jobs in emerging industries, either as employees or as entrepreneurs. Grants to pay for the cost of education were the most common form of support. President Kim referred to these workers as “new intellectuals.” He had not graduated from college, and understood the difficulties people faced in the hierarchical labor market of the time.
Then, as it is now, educational opportunities were abundant in major South Korean cities. Grants could be used for selected courses at private institutes as well as traditional degree-granting institutions. In the winter vacation of 2011, I took a Java programming class at an institute in Jongno and got to know some other students. Several had lost their jobs or their business, and were using government grants to pay fees with the hope of getting a job as a programmer after completing the full course.
At the same time, the government offered support for new businesses that, hopefully, would grow into a position to retrain or hire retrained workers. Support focused on low-interest loans and the creation of new markets through deregulation. A vignette from the time offers insight. In late 1998 on a visit from Japan, I stayed with a friend in Seoul for a few days and one of those days happened to be the day that his first cable modem was installed. In the conversation, the technician mentioned that he had lost his job earlier in the year, but received training as a technician in what was about to become a booming new industry. I remember being shocked at the speed of the Internet that connected without a dial-up modem; it felt like something out of “Star Trek.”
The combination of investing in worker skills, as well as businesses and markets that needed them helped South Korea recover from the IMF crisis quickly and move to the next stage of development in the 2000s. To return to the broadband example, South Korea’s early adoption helped it become a powerhouse in integrating the Internet into everyday life. When the pandemic hit in 2020, it was quick to integrate mobile technology into its public health response.
The approach also reflects the lack of ideological and bureaucratic rigidity that plagues crisis management elsewhere. The use of tax money for grants to individuals and low-interest loans is the kind of government intervention that classical economic liberals reject, but the use of policy to deregulate markets to spur competition would meet with approval. Social democrats would look at things in reverse. In 1998, South Korean policymakers focused on speed to restore confidence in the economy and the future rather than ideological purity and perfect implementation.
The flurry of IMF era reforms also drew on a long history of “yeonsu,” or continuing education in the workplace. “Yeonsu” is a recognition that, in an ever-changing world, workers need support in updating their skills, knowledge, and understanding of the world.
Nations experiencing labor market turmoil should look to “yeonsu” and “new intellectuals” for inspiration. These concepts stand as reminders that investing in people is the most effective long-term economic policy.