Labor Market Matching Efficiency and Koreas Low Post-Pandemic Unemployment

IMF Working Papers, May 2, 2025

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Korea’s unemployment rate has remained significantly lower than pre-pandemic levels following the COVID-19 pandemic.
A sustained increase in labor market matching efficiency is identified as the primary driver of persistently low post-pandemic unemployment.
The framework suggests that, barring an unlikely reversal of these efficiency gains, the unemployment rate is likely to remain below 3 percent in the medium term.
Despite heightened labor market tightness, post-pandemic wage growth in Korea has been modest; increased matching efficiency helps account for this paradox.

The paper examines unemployment dynamics through a framework of labor market flows incorporating a matching function.
A variant of the Diamond-Mortensen-Pissarides model is developed to analyze how increased labor market matching efficiency affects unemployment and wage dynamics.
Subject focus includes: Labor, Labor force, Labor force participation, Labor markets, Unemployment, Unemployment rate.
Keywords emphasized in the analysis: growth in Korea; Labor force; Labor force participation; labor market flow; labor market matching efficiency; labor market tightness; Labor markets; Medium-term structural unemployment; unemployment rate; pandemic unemployment; wage growth.

Central projection: unemployment rate likely to remain below 3 percent in the medium term, conditional on continued matching efficiency gains.
Scenario noted: an unlikely reversal of the post-pandemic efficiency gains would be required for unemployment to return to pre-pandemic levels.

The paper highlights an apparent paradox: heightened labor market tightness concurrent with only modest post-pandemic wage growth.
The Diamond-Mortensen-Pissarides model variant demonstrates that increased labor market matching efficiency can reconcile tighter labor markets with modest wage growth.

Source: IMF Working Papers — "Labor Market Matching Efficiency and Koreas Low Post-Pandemic Unemployment" by Hua Chai (May 2, 2025).