The Effects of Inter-Korean Integration Type on Economic Performance: the Role of Wage Policy

Sung Min Mun () and Byoung Hark Yoo ()
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Sung Min Mun: Economic Research Institute, The Bank of Korea
Byoung Hark Yoo: Department of Economics, Soongsil University

No 2012-8, Working Papers from Economic Research Institute, Bank of Korea

Abstract: This paper analyses the effects of various possible types of inter-Korean integration on economic performance in the northern part of Korea after reunification, focusing on the role of wage policy. The wage policy of reunified Germany is generally said to have been one of the major reasons for the increase in unification costs there, because it led to East German worker wages in excess of their productivity level. To reduce the costs of unification, Korea therefore needs to apply wage policies different from reunified Germany’s and from South Korea’s, which requires a new type of integration. Against this backdrop, this paper classifies the integration types into three?a unitary state, a federation, and an SAR (Special Administrative Region)?and analyzes their relative economic effects under the assumption that each type is accompanied by different wage policies. According to this analysis, the federation type shows unemployment and growth patterns similar to those observed in East Germany, the unitary state type higher unemployment and lower growth than in East Germany, and the SAR type lower unemployment and higher growth.

Keywords: Korean reunification; economic integration; wage policy; minimum wage (search for similar items in EconPapers)
JEL-codes: H77 O21 O24 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2012-07-17
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Citations: View citations in EconPapers (1)

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