## Advancing Labor Market Reforms in Korea

_IMF Working Papers, August 23, 2024_

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

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### 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*

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_Source: https://www.imf.org/en/publications/wp/issues/2024/08/23/advancing-labor-market-reforms-in-korea-553978_