The impacts of Dual Labour Markets on Unemployment and Productivity (in Korean)

Sun-Bin Kim, Yongsung Chang and Taesu Kang

Economic Analysis (Quarterly), 2016, vol. 22, issue 1, 1-34

Abstract: It is now well-known that Korean labor markets are legally segmented into two tiers: one is for regular jobs and the other for non-regular jobs. Non-regular markets are characterized by lower wages and less restrictions on lay-offs. The expansion of non-regular jobs have two opposite impacts. It may reduce the labor costs and increase the total employment, while it may worsen the average welfare of workers which recently raise a major concern in Korean economy. This paper modifies the Mortensen-Pissarides matching model to evaluate the efficiency of the dual structure of the Korean labor markets. The quantitative analysis shows that non-regular jobs deteriorate efficiency but improve flexibility of the Korean labor markets. Policies that deteriorate the working condition of non-regular jobs, such as an decrease in the transition probability or an increase in lay-off probability, results in increases in job searchers and employments in the regular markets. As a result, the efficiency of the aggregate labor markets improves while the unemployment rate increases. Counterfactual labor market reforms that the dual labor markets are unified into a single market with non-regular jobs only or regular jobs only are also evaluated. Production, wages and unemployment rate are higher in the regular-jobs-only economy compared to non-regular-jobs-only economy.

Keywords: Dual labour market; Regular worker; Non-regular worker; Search and matching model; Heterogeneous agent model (search for similar items in EconPapers)
JEL-codes: J2 J3 J4 (search for similar items in EconPapers)
Date: 2016
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