The Impact of College Leaves of Absence on Labor Market Outcomes

About this book

Human capital has become a key driver of individual employment and economic growth over the past few decades. The Republic of Korea in particular has experienced rapid and sustained economic success due to a marked rise in educated human capital over the past thirty years, but this status has begun to falter as glaring inefficiencies in the South Korean educational system, particularly concerning higher education, have emerged. The high-performing academic curricula at Korea’s higher education institutions fail to reflect the needs of industries, and the subsequent high unemployment rate among university graduates has led to a high incidence of voluntary college leaves of absence (LOAs) aimed at acquiring and reinforcing those skills required by the labor market, suggesting that Korea’s educational progress and the labor market are not well matched. This dissertation is the first study aimed at understanding this voluntary break in college schooling while controlling for self-selection bias using propensity score matching (PSM) estimates. This study contributes to exploring the causal effect of a college LOA on labor market outcomes and heterogeneous effects across family background based on the 2011 Graduates Occupational Mobility Survey (GOMS), the results of which may be useful for policymakers. Distinguishing between engaging in a college LOA to gain skills or experience and engaging in an LOA because of financial difficulties, I find significant positive effects of a college leave of absence on earnings and employment status for college LOAs motivated by employment preparation for both males and females. Considering that there is high financial dependence on parents in South Korea, both for funding one’s education and for covering the monetary costs of taking a college LOA, there is a strong link between family socioeconomic status (SES) and access to extra career-related activities through a college LOA. Families with low SES do not have the same opportunities to participate in college LOAs for employment preparation as do high SES students. Although low SES students have higher heterogeneous effects of a college LOA to prepare for employment, students with low parental income have limited returns to education. The close relationship between parental wealth and the ability to invest in experience and on-the-job training through an LOA may play a significant role in achieving successful labor market outcomes. This means that college LOAs can become a new channel for intergenerational transmission of earnings and even social inequality. The impact of a college LOA due to financial difficulties on monthly income is not statistically significant for both males and females. However, statistically significant negative effect for males are found after controlling for work experience while enrolled in college, implying that student employment during college for male students who take an LOA for financial reasons has a significantly negative effect on wages in the labor market. This could be because the types of jobs that students might work may not be oriented toward labor market preparation and may even impede the development of increased human capital or have negative signaling properties, thus inducing negative labor market payoffs after graduation. Interestingly, even LOAs due to financial difficulties have a positive impact on female employment status. Given that South Korea has high barriers to labor market participation for women in South Korea, a college LOA contributes to a reduction in temporary female workers, indicating that more women are participating in the labor market with stable employment status.