Labor Market Duality in Korea

Abstract

Description based upon print version of record. Labor market duality is a complex and critical issue for many countries that can lower productivity, contribute to inequality and result in negative externalities. In this paper, I study duality in the Korean labor market and analyze its sources and potential policy options. I find that employment protection legislations and large productivity differentials are the key drivers of Korea's duality. In addition, applying a general equilibrium search-and-matching model and calibrating it to the Korean economy, I show that well-calibrated flexicurity policies can significantly reduce duality and inequality and raise welfare and productivity. Notably, the introduction of all three pillars-flexiblity, a strong safety net and active labor market policies-is critical for its success. If only one pillar is introduced it can result in negative side-effects and might not reduce duality. Cover; Contents; Abstract; I. Introduction; II. How Has Duality Evolved in Korea? What is Its Current State?; III. What is the Impact of Labor Market Duality in Korea?; IV. What Explains Labor Market Duality in Korea?; V. How Can Policy Address Labor Market Duality?; A. What is Flexicurity and When Does it Work?; B. A Model of Labor Market Duality; C. Calibration to the Korean Economy; D. Putting Flexicurity to the Test; VI. Conclusion; References; Tables; 1. Inequality by Employment Status; 2. Flow Probability by Employment Status (2013-14); 3. Regression on Number of On-the-Job Trainings 4. Wages and Working Conditions by Firm Size and Employment Type5. Parameters for Calibration; 6. Moments for Calibration; 7. Policy Experiments; Figures; 1. Non-Regular Employment; 2. Employment by Status; 3. Employment by Type; 4. Employment by Gender; 5. Employment by Age and Highest Education Level; 6. Employment by Sector; 7. Employment by Firm Size; 8. Relative Wage of Non-Regular Employment Types; 9. Social Coverage by Employment Type; 10. Income Distribution by Employment Status; 11. Separation and Layoff Rates; 12. Private Spending on Education 13. Dismissal Regulation for Regular Workers14. Severance Pay for Redundancy Dismissal; 15. Relative Labor Productivity; 16. Relative Wages in Services by Employment Type; 17. Union Density; 18. Trade Union Density by Employment Type; 19. Changes in Employment Shares by Wage Level; 20. Wages by Wage Level; 21. Net Replacement Rate; 22. Strictness of Employment Protection; 23. Spending on Active Labor Market Policies; 24. ALMP Spending by Type of Program; 25. Tax Wedge; 26. Severance Pay Schedule and Firing Cost; 27. Share of Job-Destruction by Tenure; 28. Wage by Tenure 29. Share of Job Destruction by Tenure30. Income Change by Quintile (Firing Cost); 31. Welfare Change by Quintile (Firing Cost); 32. Share of Job-Destruction by Tenure; 33. Income Change by Quintile; 34. Welfare Change by Quintile; Boxes; 1. Korea-Key Labor Market Reforms; 2. Women, Elderly and Youth-Why Does Non-Regular Work Affect Them Disproportionately?