The government is rolling up its sleeves to stimulate start-up activities among young people as youth unemployment worsens.
The November job data released by Statistics Korea on Wednesday put the unemployment rate among those aged 15-29 at 6.8 percent, more than double the general unemployment rate of 2.9 percent.
While the overall jobless rate improved this year on the back of employment growth in the service sector, the rate among young people worsened.
Korea’s youth unemployment figure may not look particularly bad compared with other countries. Yet the rate is widely believed to underestimate reality. Studies based on a more broadly defined unemployment rate suggest nearly one in five young people is jobless.
The situation is expected to deteriorate sharply next year as the job market is forecast to tighten.
Against this backdrop, the government is set to make a big push next year to encourage entrepreneurship among young people.
The government’s drive will be led by the Ministry of Education, Science and Technology, which reported its measures to President Lee Myung-bak on Wednesday.
The ministry plans to strengthen entrepreneurship education for college students and expand start-up infrastructure at universities.
Entrepreneurship education is an area most domestic universities have shunned thus far. Currently only two universities offer courses on entrepreneurship. Next year, the ministry will select 50 universities for its industry-university cooperation program and have each of them set up an entrepreneurship center.
These centers will help students develop an entrepreneurial mindset, provide support to student start-up associations and hold forums to link student entrepreneurs and investors.
The selected universities are also required to have start-up support systems in place and use part of their surplus funds and tuition reserves to provide seed money to start-ups launched by their students.
The government’s policy emphasis on youth start-ups is well advised as they can not only curb youth unemployment but inject vitality into the Korean economy.
In today’s knowledge economy, innovation increasingly comes from technology- and knowledge-based start-ups founded by young people. Big global corporations churn out innovative products by acquiring new technologies from these creative start-ups.
While the importance of youth start-ups is increasing, Korea has been experiencing a downward curve in the creation of youth start-ups. According to the government, venture CEOs in their 20s and 30s accounted for a mere 12 percent of the total in 2008, a sharp drop from 54 percent in 2000.
The decline in youth start-ups needs to be reversed not only to create more jobs for youth but to prevent the innovative capacity of the Korean economy from being depleted.
Yet the government faces several important challenges in promoting entrepreneurship among young people.
First, it needs to reform the lending practices of financial companies. In Korea, start-ups that have used up their seed money cannot expect funding from angel investors because such investors are still a rare species here.
Hence, an entrepreneur in such a situation has to take out a loan to keep his fledgling enterprise afloat. But to get a loan, he needs joint guarantors. In many cases, entrepreneurs have no one else but their family members to underwrite the loan contracts.
As such, when a start-up fails, which is quite common, the burden of debt repayment falls on the entire family of the entrepreneur. This makes the cost of business failures unbearably high.
A solution to this problem is to cultivate angel investors. For this, the government needs to create a mechanism that enables them to recoup their investment in start-ups.
Currently, the only exit available for angel investors is the stock market. But it takes 12 years on average for a start-up to make an initial public offering. Few investors are patient enough to wait for so many years.
This problem calls for an arrangement that can facilitate mergers and acquisitions of venture companies. Such an arrangement would not only spur start-up activity but go a long way toward creating a well-functioning venture ecosystem.
