The Recent Rise in Youth Unemployment Rate in Korea: A Flow Decomposition Analysis

Abstract

This study quantifies the contribution of labor market transition rates to the rise in youth (20–29 years old) unemployment rate in Korea during 2012–2017. Under the assumption that there was no entry into or exit from the labor force, decreasing job-finding rates and increasing job-separation rates account for 2.82%p and 0.02%p of the increase in youth unemployment rate during 2012–2017 (2.47%p). The two-state analysis shows that a falling job-finding rate serves as the main factor for the rise in youth unemployment rate. When entry into or exit from the labor force is explicitly considered, the increase in youth unemployment rate can be mainly attributed to the decline in transition rate from the unemployed to the employed and that from the “not in the labor force” (NILF) to the employed, with the impact of the former double that of the latter. The results of the three state analysis are similar to those of the two-state analysis. The decrease in transition rate from the unemployed and NILF to the employed was the main factor in the rise in youth unemployment rate during 2012–2017.