Advancing Labor Market Reforms in Korea

IMF Working Papers, August 23, 2024

Source details

Canonical URL

Advancing Labor Market Reforms in Korea

Other formats

• Markdown version
• Structured JSON version
• Bundle manifest

Bibliographic details

• Authors: Stella Tam, Xin Cindy Xu
• Published: August 23, 2024
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9798400289026.001

Summary findings

• The paper examines structural challenges facing the Korean labor market and analyzes the macroeconomic effects of potential labor market reforms.
• Cross-country empirical analysis finds that easing of employment protection legislation tends to have positive macroeconmic effects during periods of strong growth but could turn contractionary in periods of slack.
• Increased spending on active labor market policies and reductions to the labor tax wedge tend to be more effective in periods of slack.
• The analysis highlights the importance of considering economic and policy conditions when designing labor market reforms.
• Under the current disinflationary policy stance, the government’s focus on the working hour reform seems appriorate.
• With growth recovering, deregulation to reduce employment protection for regular workers can be considered, combined with targeted support to vulnerable groups.

Empirical analysis and scenarios

• Cross-country empirical approach used to assess macroeconomic effects of different reform types.
• Reform-type effects by economic condition:
  • Easing employment protection legislation:
  • Positive macroeconomic effects during periods of strong growth.
  • Could turn contractionary in periods of slack.
  • Increased spending on active labor market policies:
  • More effective in periods of slack.
  • Reductions to the labor tax wedge:
  • More effective in periods of slack.
• Policy design implication: Effectiveness of reforms depends on interaction with the economic cycle and prevailing policy stance.

Policy recommendations

• Short-run/near-term:
  • Given the current disinflationary policy stance, prioritize the working hour reform.
• Medium-term/conditional on growth recovery:
  • Consider deregulation to reduce employment protection for regular workers.
  • Combine deregulation with targeted support to vulnerable groups.
• Overall:
  • Design reform packages that account for economic and policy conditions, tailoring measures (e.g., employment protection easing, active labor market spending, tax wedge reductions) to whether the economy is in a growth phase or slack.

Key statistics and publication identifiers

• Authors: Stella Tam, Xin Cindy Xu
• Date: August 23, 2024
• Pages: 25
• Volume: 2024
• Issue: 183
• Series: Working Paper No. 2024/183
• DOI: https://doi.org/10.5089/9798400289026.001
• Stock No: WPIEA2024183
• ISBN: 9798400289026
• ISSN: 1018-5941
• Preview citation line included in source: Stella Tam, and Xin Cindy Xu. "Advancing Labor Market Reforms in Korea", IMF Working Papers 2024, 183 (2024), accessed 9/11/2026, https://doi.org/10.5089/9798400289026.001

IMF Working Papers: Advancing Labor Market Reforms in Korea

Content in this bundle

• Working Paper
  • Working Paper (Markdown version)
  • Working Paper (PDF)