Labor Market Duality in Korea

IMF Working Papers, June 1, 2018

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Labor Market Duality in Korea

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Bibliographic details

• Authors: Johanna Schauer
• Published: June 1, 2018
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781484357934.001

Summary findings

• Labor market duality can lower productivity, contribute to inequality and result in negative externalities.
• Key drivers of Korea’s duality identified:
  • employment protection legislations
  • large productivity differentials
• Well-calibrated flexicurity policies can:
  • significantly reduce duality and inequality
  • raise welfare and productivity
• Critical condition for success:
  • 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.

Model and calibration

• Analytical framework:
  • A general equilibrium search-and-matching model is applied.
• Calibration:
  • The model is calibrated to the Korean economy.
• Model outcomes:
  • Combined flexicurity reforms (all three pillars) produce the intended reductions in duality and improvements in welfare and productivity.
  • Partial implementation (single pillar) can generate adverse side-effects and fail to reduce duality.

Policy implications and recommendations

• Policy design should emphasize simultaneous implementation of:
  • flexibility (labor market flexibility measures)
  • a strong safety net
  • active labor market policies
• Caution against piecemeal reform:
  • Implementing only one pillar risks negative side-effects and may not achieve reduction in duality.
• Focus areas for policymakers:
  • Reform of employment protection legislations
  • Measures to address large productivity differentials across firms and worker types
  • Complementary policies that combine flexibility with social protection and activation

Publication and metadata

• Author: Johanna Schauer
• Publication date: June 1, 2018
• Series: IMF Working Papers, Working Paper No. 2018/126
• Pages: 36
• Volume: 2018
• Issue: 126
• DOI: https://doi.org/10.5089/9781484357934.001
• ISBN: 9781484357934
• ISSN: 1018-5941
• Subject: Active labor market policies, Employment, Labor, Labor markets, Wages
• Keywords: Active labor market policies, company welfare, Employment, employment contracts, flexicurity, gender pay gap, Global, Korea, Labor market duality, Labor markets, on-the-job training, pay incidence, salary owner, salary worker, severance pay, temporary contract, temporary worker, tier worker, unemployment rate, wage difference, wage profile, Wages, WP

Johanna Schauer, "Labor Market Duality in Korea," IMF Working Paper No. 2018/126 (2018).