## Labor Market Duality in Korea

_IMF Working Papers, June 1, 2018_

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**Canonical URL:** [Labor Market Duality in Korea](https://www.imf.org/en/publications/wp/issues/2018/06/01/labor-market-duality-in-korea-45902)

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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

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### 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).*

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_Source: https://www.imf.org/en/publications/wp/issues/2018/06/01/labor-market-duality-in-korea-45902_