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Does the College Tuition Regulation in Korea Improve Social Welfare?

Author

Listed:
  • Dhongkyu Yoon

    (University of Washington)

  • Kyung-woo Lee

    (Yonsei University)

Abstract

Since 2009, Korea’s college tuition regulation has reduced tuition by more than 20% in real terms. This paper examines the welfare effects of tuition regulation using a model of education choices depending on ability and wealth. College is costly but improves productivity and job prospects, whereas high school is free but has no benefits. If firms can observe workers’ abilities, tuition regulation can benefit most people because it makes college more affordable. However, if only workers can observe their ability, the welfare gain can be counteracted by the reduction in wages due to changes in education choices. In the simulated model, a 20% tuition reduction hurts approximately 90% of the population if only workers know their abilities. In contrast, it benefits more than 80% of the population if firms can also observe workers’ abilities. These findings suggest that tuition regulation may require complementary policies to facilitate the evaluation of workers’ abilities.

Suggested Citation

  • Dhongkyu Yoon & Kyung-woo Lee, 2023. "Does the College Tuition Regulation in Korea Improve Social Welfare?," Korean Economic Review, Korean Economic Association, vol. 39, pages 5-53.
    • Handle: RePEc:kea:keappr:ker-20230101-39-1-01
    as

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    References listed on IDEAS

    as
    1. Black, Sandra E. & Devereux, Paul J., 2011. "Recent Developments in Intergenerational Mobility," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 16, pages 1487-1541, Elsevier.
    2. Hanming Fang, 2006. "Disentangling The College Wage Premium: Estimating A Model With Endogenous Education Choices," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(4), pages 1151-1185, November.
    3. Pau Balart, 2016. "The Increase in College Premium and the Decline in Low-Skill Wages: A Signaling Story," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 18(3), pages 363-384, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Tuition Regulation; Education Choices; Labor Productivity; Social Welfare;
    All these keywords.

    JEL classification:

    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
    • I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
    • I23 - Health, Education, and Welfare - - Education - - - Higher Education; Research Institutions
    • I28 - Health, Education, and Welfare - - Education - - - Government Policy

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