Labor Market Duality in Korea

Johanna Schauer

No 2018/126, IMF Working Papers from International Monetary Fund

Abstract: Labor market duality is a complex and critical issue for many countries that can lower productivity, contribute to inequality and result in negative externalities. In this paper, I study duality in the Korean labor market and analyze its sources and potential policy options. I find that employment protection legislations and large productivity differentials are the key drivers of Korea’s duality. In addition, applying a general equilibrium search-and-matching model and calibrating it to the Korean economy, I show that well-calibrated flexicurity policies can significantly reduce duality and inequality and raise welfare and productivity. Notably, the 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.

Keywords: WP; temporary worker; severance pay; company welfare; unemployment rate; Korea; Labor market duality; flexicurity; salary owner; gender pay gap; on-the-job training; wage difference; tier worker; salary worker; employment contracts; wage profile; temporary contract; pay incidence; Employment; Labor markets; Wages; Active labor market policies; Global (search for similar items in EconPapers)
Pages: 36
Date: 2018-06-01
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Citations: View citations in EconPapers (6)

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