This is the 38th in a series of articles introducing the Korean government’s R&D policies. Researchers at the Science & Technology Policy Institute will explain Korea’s R&D initiatives aimed at addressing major socioeconomic problems facing the nation. Ed.


Korea’s unemployment rate was 3.7 percent in 2009, lower than that of other advanced economies, whereas its youth unemployment rate was considerably higher at 8.1 percent. The number of unemployed youth in the same year reached 347,000, of which half were high school graduates and the other half was composed of two-year college graduates and graduates of four-year universities and higher. The rate of unemployed high school graduates is continuously falling while the proportion of graduates of two-year colleges and four-year universities and higher is steadily on the rise. This is aggravating the job prospects of graduates of four-year universities and higher that wish to get prominent jobs.

The proportion of the youth (aged 15-29) among the unemployed is 40.8 percent in Korea, which is higher than that of Germany (26.5 percent), Japan (30.9 percent), and Spain (39.1 percent). The proportion of unemployed youth in Korea was highest in a comparative study of six countries over three years from 2002 to 2004, but it has started to fall since 2005.

The cause of Korea’s high youth unemployment rate lies in the economic recession, but recently, a large part can be attributed to the pursuit of jobless growth by businesses striving to achieve improved productivity.

In 2009, the number of employed workers in Korea fell by 72,000 year-on-year and by 126,000 year-on-year in the manufacturing sector. Although the services industry is creating jobs, concern remains about its ability to absorb jobs at the rate the manufacturing sector is losing them.

Connecting science and technology to the generation of jobs for youth can help solve Korea’s youth unemployment problem. The creation of science and technology achievements is imperative as increased R&D investment and R&D results lead to the technology innovation of businesses, which then creates more youth employment. More specifically, increasing R&D and encouraging investment in the commercialization of new products and new services are desperately needed.

The expansion of science and technology achievements requires vitalizing the downstream that connects dormant patents and practical science technology that are possessed by universities and public research institutes into the creation of added value. To A solution is necessary to improve the employment elasticity of the manufacturing sector to make the sector produce more jobs as it grows. Ways could include nurturing one-person companies, incubating science and technology-based small and medium enterprises and facilitating the establishment of venture companies. In other words, the government must develop science and technology policies that clearly aim for increased employment and actively take part in solving the unemployment dilemma.

One-person companies in universities

Universities have infinite potential as the youth between ages 19 and 29 stay to acquire specialized knowledge and nurture their dreams for the future. Universities are education institutes where young people can build their individual capacities, and harbor their dreams and visions as future entrepreneurs. Recently, as university graduates find it more difficult to find jobs, there is a trend to intentionally lengthen academic programs by a couple of years so that their total time in university is about five to six years.

Various knowledge services inter alia, lifestyle consulting, business support services, specialized services and IT services are fields in which young people with interests in business can set up their own companies. However, they lack the experience and capability to start up their own enterprises, and therefore, encouraging entrepreneurship and the creation of one-person companies is urged. One-person companies can be defined as businesses in knowledge and technology-intensive sectors that are set up by a single person who enters the business network with an original idea.

The number of university professors and public research institute researchers starting venture businesses is steadily on the rise, which is expected to have a positive effect on the establishment of businesses by young people. The number of professors founding businesses increased from 472 in 2006 to 550 in 2010. Students will learn from their enterprising experiences, having a positive influence on the setting up of one-person companies. This trend is also continuing to rise in Japan, and because of the technology assets accumulated by the research activities of professors, their royalties from technical licenses are also rapidly increasing. The income of Japanese universities from patent rights was 54 million yen in 2003 ($653,000 at present rates), and it almost doubled in 2008 to 98.6 million yen.

The proportion of young people trying to find jobs by starting their own businesses was found to be 4.38 percent about 29,245 people (Korea Employment Information Service, 2009). Breaking that figure down by academic background shows that 2.77 percent of four-year university graduates (12,133 persons), 3.63 percent of two-year college graduates (12,537 persons) and 5.32 percent of high school graduates (4,575 persons) wanted to set up their own companies. The largest proportion of young people 44.6 percent got jobs as regular workers of SMEs, followed by employees of large conglomerates (21.4 percent) and public organizations (17.1 percent). Therefore, it may be assumed that about 30,000 young people want to start businesses, and are potential candidates for training in the creation of small companies.

Professor and researcher entrepreneurs

The number of venture companies continuously rose since 1998, following the venture company boom that was created by the President Kim Dae-jung administration, reaching 19,601 as of 2010. The number of university professor and researcher entrepreneurs fell slightly in 2008 at the beginning of the economic recession, but it rose again in 2009. However, the relative proportion of such professors and researchers fell from 16.6 percent in 2006 to 9.4 percent in 2009. The reason is that the intellectual class reacts more conservatively than the general public to the risks of setting up businesses in an economic downturn.

The number of venture start-ups in universities was 5,039 in China, the greatest number in 2007, followed by 4,543 in the U.S. In Japan, the number reached 1,775, showing a rapid strengthening of entrepreneurship in universities and entrepreneurial dynamic capabilities. In contrast, the aggregate number of ventures founded by university professors and public research institute researchers in Korea was a mere 1,738, falling behind that of Japan.

The success rate of companies that were initiated by professors and researchers in Korea during the past decade since 1997 as 72.7 percent, higher than the 55 percent survival rate of general companies within five years of inception and the 70 percent survival rate of companies cultivated from business incubators (Small and Medium Business Administration, 2010). Given the high success rate of companies set up by professors and researchers, the university and research institutes need to offer full support to these ventures. It is expected that the success rate of young people graduating from universities will also be high since the highly-educated people are conservative in setting up businesses and record high success rates.

Job creation potential of one-person companies

The job creation potential of one-person companies must be indirectly assessed by undertaking an analysis of the job creation effects of SMEs and venture companies. Accordingly, we devised a job creation effect model and conducted a mutual comparison of companies by size, such as SMEs, venture companies and large conglomerates. We assumed that the employment of a company depended on variables like technological innovation, the number of employees during the previous period, monthly salaries of employees and capital, and used patent applications, R&D investment and productivity as the substitute indices of technological innovation.

For this analysis, the Science and Technology Policy Institute’s (STEPI) 2008 and 2009 Technology Innovation Study Data, the 1995-2008 Corporate Finance Data of the Korea Information Service and the 1995-2007 patent applications data of the Korea Institute of Patent Information were used to build eight variables. A total of 1,478 panel data over the course of 14 years were referred to.

The analysis result showed that SMEs and venture companies had a higher employment creation effect than large conglomerates. In particular, a 1 percent increase in R&D investment led to a 0.028 percent employment increase in venture companies, representing the highest job creation effect. The job generation effect of SME R&D investments was lower than that of venture companies, but was higher in statistical significance. However, technological innovation at large conglomerates did not show a significant correlation with employment.

The high job generation effect of venture companies implies that more young entrepreneurs who are willing to take on an adventure like setting up one-person companies must be produced in order to solve the youth unemployment problem in the long run. If we produce talented venture entrepreneurs through the nurturing of one-person companies, and they develop into competitive venture companies, they will employ the young people of the future. The emergence of many one-person companies will inspire vitality across the economy, improve the international competitiveness of companies and ultimately lead to stronger employment elasticity of the Korean economy.

Expand support to one-person companies

Greater support to one-person companies is called particularly for universities. High-tech-based venture companies are expected to act as the reservoir of science engineering resources, but after the venture boom at the end of the 1990s, the number of venture start-ups has been declining. Therefore, we need to build an environment for university graduates to start up companies so that the venture boom will be revitalized and the high youth unemployment rate lowered.

Several central government agencies and local autonomies are already implementing this policy. For instance, Seoul Metropolitan City is providing support through its “Youth CEO 1,000 Project” to entrepreneur-to-be youth in their 20s and 30s who have creative ideas but are not sure how to set up a company. Those who are elected are provided with an office at the Youth Business Support Center for one year, and receive funding of 700,000 won to 1 million won every month to develop business ideas and work on their businesses. The “Youth CEO 1000 Project Season Two,” which began in July 2010, selected 451 young people in the knowledge sector, 300 in the general sector and 250 in the technology sector.

In this context, SMBA has also been undertaking various projects, such as offering “experimental enterprise support,” “nurturing of pre-technology entrepreneurs” and “idea commercialization support” to 82 one-person companies in selected industries since 2009. As of 2008, the one- to four-person companies reached 2.59 million (85 percent of total companies), among which 65.9 percent or 51,063 were companies that received support.

The Ministry of Culture, Sports, and Tourism selects companies based on their contents, and offers support in funds, education, consulting and marketing, among others, up to 70 percent of the total operation costs (20 million-40 million won per year). In 2009, a total of 1.3 billion won was provided as support to 37 people, and this is expected to rise to 2 billion won in 2010 and 15 billion won in 2011. Prime cases include Jingyoung Lee’s Jeenybeeny children’s book series and Dugyoung Kim’s virtual makeup service and decorative construction tiles utilizing Korean handwriting.

Going forward, more support must be offered to one-person youth entrepreneurs in knowledge and technology sectors so that university graduates who wish to set up businesses of their own can be provided with practical support. One year after a company’s founding, the support should be reduced on a phase-by-phase basis, so that it can be phased out within three years. For example, monthly support of 1.7 million won in the first year, 1.2 million won in the second and 70,000 won in the third may be provided, inducing the company to enter the circles of venture companies in the industry. During the years they receive support from the center, they should be subject to four major types of insurance (national pension, medical insurance, employment insurance and industrial accident insurance) so that their work experience after graduation will be officially recognized.

One-Person Company Centers

In order to encourage university graduates to become entrepreneurs, we propose that the government install and operate One-Person Company Centers in major universities. It can select the universities through competition, and provide support for the initial year. After assessing the achievements for the selected universities, it could categorize them into A, B and C ranks, and thereby provide differentiated support. For instance, a university that ranked A in the assessment can receive funding of around 1 billion won, and after evaluating the project in the third year, the government can decide whether or not to continue providing support. The government can gradually expand the number of universities it funds if the project is successful.

The installation and operation of the One-Person Company Center begins with an unemployed university graduate who wishes to set up a business and registers his or her personal information and assets at the center of a university. The center then deliberates on the business proposals, selects its candidates and provides systematic support, such as an office desk and business funds. The center could recruit supporting staff to assist with tasks including accounting and insurance payments of the one-person company, and their labor costs can be deducted from the one-person company’s business funding. Furthermore, the costs of education, training and advice may be used as indirect costs.

Improve the business incubator system

The Business Support Center currently in operation aims to provide facilities to the entrepreneurs along with management and technology assistance in order to increase the success rate of their businesses. Pursuant to the “Small-and-Medium Enterprise Establishment Support Act,” 285 Business Support Centers were installed across the country, among which 227 (79.6 percent) were installed in universities. Initiated by the SMBA in 2003, this project provided a total of 28.6 billion won including operational funding of 8.2 billion won and 20.4 billion won for the construction of buildings. In terms of specialized sectors, the information processing and computer-related industries had the most centers at 73 (26.3 percent), followed by 49 in the machinery and equipment manufacturing sectors (17.2 percent), 44 in bio-environment-related industries (15.4 percent), and 36 in the electronic parts manufacturing industry (12.6 percent).

The system must be overhauled so that the One-Person Company Center can assist the operation of the Business Incubator Center, which focuses on providing support to venture businesses larger than a certain size, in order to nurture one-person companies. Furthermore, the conditions for capital and investment loans should also be eased in the business proposal, and the main contents of the proposal should be changed to be more appropriate for the founding of one-person companies and providing support to them. Lastly, those centers wishing to become specialized in the support of one-person companies, should be changed into One-Person Company Centers after due assessment.

Develop and support financial products to support one-person companies

There are currently no financial support products for one-person companies. Although they may be subject to the support and investment of the SME Policy Fund, credit guarantees and venture support agencies (such as venture capitalists), it is highly unlikely that one-person companies would be elected as the beneficiaries. Therefore, financial institutions, such as the Industrial Bank of Korea, must develop and operate financial products to support one-person companies. They can also consider offering low-interest loans up to a fixed ceiling, based on a recommendation letter from the head of the One-Person Company Center.

In addition, education and science and technology funds must be utilized to support one-person companies. For example, the operational regulations of the Science and Technology Promotion Fund should be revised to include one-person companies. Venture capitalists should be induced to expand their investment sectors and invest in these companies. The SME Establishment Support Act and the Special Measures on Venture Incubating Act must be revised to include one-person companies as venture businesses, and the financial support to SMEs should also be applicable.

Cultivate entrepreneurship in students

In truth, the promotion of one-person companies can only be achieved if university students have a strong entrepreneurial spirit. We propose the implementation of an education program that would enable the current students to experience working at SMEs, and thereby cultivate entrepreneurship. The government should take policy measures to devise and operate on-site experience programs during the summer and winter holidays, and also provide participation fees.

Another idea is to expand and install a graduate school that specializes in entrepreneurial management within science and engineering colleges, and provide support to enable systematic research and education. In 2009, the government provided funding of 1.8 billion won to graduate schools of entrepreneurial management at five universities, notably Chung-Ang University. This effort should be expanded to more schools and the amount of funds should also be increased. Moreover, the government should consider designating graduate schools of technology management as specialized entrepreneurial management graduate schools and provide more funds that are required to operate entrepreneurial education programs. Furthermore, the government should recommend universities to designate “entrepreneurship and corporate management” as common elective courses, and invest in them so that textbooks can be made and provided to students at affordable prices.

Entrepreneurial achievement as an indicator

The media and other university evaluation agencies must utilize the number of one-person company start-ups of students and professors as evaluation indicators. It would be advantageous for universities to consider the number of graduates who set up new businesses as being employed.

Moreover, the body that oversees the one-person company incubator program should gather data on the revenues of the one-person companies of each university that received funding from the government every year, and disclose the information. This will stimulate a goodwill competition among universities to form a sound entrepreneurial boom. Furthermore, every year, if a university with prominent achievements in this area is selected and awarded, it would greatly encourage universities to found businesses. According to evaluation results, prominent universities may also receive differentiated support for their One-Person Company Center operation budget.

Venture company support systems

Efforts must be taken to nurture one-person companies of universities by creatively applying various venture company support projects. One-person companies cannot carry out their businesses alone. A venture company ecosystem must be created so that one-person companies can build a strong foundation by shaping the conditions for them to mutually cooperate within a business network. A prime process of the venture ecosystem would be: one-person company, followed by registration as a venture business, elimination due to business failure, re-establishment of a one-person company, re-registration as a venture business, and finally listing on the KOSDAQ. As such, if the venture ecosystem is built to enable one-person companies to restart their businesses despite failure, the business startups will be promoted overall.

Furthermore, the installation of a venture company council in each university will contribute to cultivating a unique entrepreneurial culture in those universities. The government should pursue various promotional measures to inspire young people to prefer creation of one-person companies to jobs at large conglomerates and stable careers. It should also pursue a campaign by the slogan, “Small things are beautiful,” which supports small businesses and may help to instill a preference for SMEs and entrepreneurship.

By Lee Kong-rae
(Senior research fellow, STEPI)