Advancing Labor Market Reforms in Korea

Stella Tam and Xin Xu

No 2024/183, IMF Working Papers from International Monetary Fund

Abstract: This paper examines structural challenges facing the Korean labor market and analyzes the macroeconomic effects of potential labor market reforms. Our 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. By contrast, increased spending on active labor market policies and reductions to the labor tax wedge tend to be more effective in periods of slack. Our analysis thus 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 also be considered, combined with targeted support to vulnerable groups.

Keywords: Duality; Deregulation; Working hours; Wage system; advancing labor market; policy condition; labor market duality; reform shock; labor market rigidity; Labor market reforms; Labor markets; Employment protection; Employment; Active labor market policies (search for similar items in EconPapers)
Pages: 25
Date: 2024-08-23
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