The Rising Returns to Education and Skill-Biased Technological Change in Korea: 1983-2000

Abstract

This paper analyzes the major causes of the change in returns to education in Korea from 1983 to 2000.The returns to education have declined sharply since 1986 when the supply of young college graduates increased substantially.However, the returns have increased again in the mid-1990s despite the continuing influx of college graduates into the labor market.The changes in returns were mostly affected by shifts in the supply of college graduates from 1983 to 1993 while the changes were affected more by the shifts in labor demand from 1993 to 2000.Moreover, the shifts in demand were mostly due to the within-industry changes rather than the between-industry changes, implying that the impact of the skill-biased technological change [SBTC] was more important than the product demand shifts on relative wages.By using micro-level panel data and industry-level measures of the technological change, the SBTC hypothesis is directly tested.It is found that highly educated workers were paid more in industries with rapid technological change than in other industries.These findings lead to the conclusion that SBTC is the most important factor in explaining the recent rise in the returns to education in Korea.