The Korea Development Institute (KDI) has released an analysis titled “The Causes and Implications of the Recent Low Unemployment Rate,” which suggests that the phenomenon of low unemployment in South Korea indicates structural changes in the labor market. The report highlights the increasing number of young people dropping out of the job search process, which is reflected statistically as a decline in the unemployment rate.
According to the KDI report, maintaining a low unemployment rate does not necessarily indicate improved labor market conditions. Despite a slowdown in economic growth since 2021, the unemployment rate, which was in the mid-3% range before the COVID-19 outbreak, has remained at a low level of mid-2% as of this year.
An increase in the number of people giving up looking for jobs is cited as a key factor in the declining unemployment rate. These individuals are classified as being “resting,” meaning they are capable of working but are not engaging in job-seeking activities for no specific reason. A significant portion of these individuals expressed a willingness to work but have given up on job searching due to worsening labor market conditions or unmet expectations.
The “resting” population compared to the working-age population has seen a substantial increase, from 1.23 million (3.2%) in 2005 to 2.54 million (5.6%) this year. The rise is particularly pronounced among those in their 20s. Despite a decrease in the working-age population in their 20s, the number of people who are “resting” increased by 64%, from 250,000 to 410,000 over the same period. Consequently, the proportion of “resting” individuals in their 20s has doubled from 3.6% to 7.2%.
Among those in their 20s, 30.9% reported that they are “resting” because they find it hard to secure their desired job. This statistic indicates not merely preparation for job searching but a weakening intention to participate in the labor market altogether. Through counterfactual analysis, KDI suggests that the job searching abandonment in the 20s accounts for 45-71% of the decrease in the unemployment rate compared to 2015. In simpler terms, if the rate of “resting” individuals in their 20s had increased more gradually, today’s unemployment rate might be 0.4 to 0.7 percentage points higher.
On a positive note, KDI points out an improvement in job matching efficiency by approximately 11% over the past decade. This means the number of new hires could increase from 100 to 111 if the number of job seekers and job postings are the same, attributed to the expansion of online recruitment platforms, AI recommendation systems, and the activation of job placement services that have improved the accessibility and accuracy of matching. The ratio of job seekers using public and private job placement agencies has more than doubled, from 32% in 2015 to 71% in 2025.
In conclusion, KDI notes that over 68% of the decline in the unemployment rate is due to structural changes in the labor market over the last decade, with a significant portion driven by the disengagement of the youth from the labor market. The institute warns that if this trend persists, it could lead to reduced human resource utilization and issues in social integration. KDI advises maintaining the willingness to participate in the labor market and expanding genuinely high-quality jobs.