Human Capital, Positional Good, or Social Network?: Exploring a Korean Model of Education

As part of an endeavor to explore interactions between education and economic growth in Korea, this paper attempts to explain the apparently puzzling finding that, during the past two decades, she has experienced an extraordinary growth in college enrollment rate in spite of a continuous fall in college wage premium. For this purpose, it focuses on school ties and dual labor market as constituent parts of socioeconomic mechanism underlying her economic growth. Drawing on the concepts of positional good, social network and social capital, it puts forward the conjecture that school ties which are built upon semi-permanent rankings of Korean universities have generated, on an extended scale, competition for entrance into top-ranked universities. At a more empirical level, this translates into the hypothesis that what is responsible for the unbridled demand for college education is not a difference in wages between college graduates and high school graduates, but a difference in wages between graduates from high-ranked universities and those from low-ranked universities. To test this hypothesis, it sets up two econometric models and obtains successful results: 1) that there exists a significant difference in wages between graduates from high-ranked universities and those from low-ranked universities; 2) that this difference becomes larger with an increase in their experience and career on the job.