Labor Market Matching Efficiency and Koreas Low Post-Pandemic Unemployment

Hua Chai

No 2025/082, IMF Working Papers from International Monetary Fund

Abstract: Following the COVID-19 pandemic, Korea’s unemployment rate has remained significantly lower than pre-pandemic levels. This paper examines the dynamics of unemployment through a framework of labor market flows incorporating a matching function and identifies a sustained increase in labor market matching efficiency as the primary driver of persistently low post-pandemic unemployment. The framework further suggests that, barring an unlikely reversal of these efficiency gains, the unemployment rate is likely to remain below 3 percent in the medium term. Notably, despite heightened labor market tightness, post-pandemic wage growth in Korea has been modest. The paper develops a variant of the Diamond-Mortensen-Pissarides model, demonstrating that increased labor market matching efficiency helps account for this apparent paradox.

Keywords: unemployment; labor market matching efficiency; labor market tightness; wage growth; labor market flow; pandemic unemployment; Medium-term structural unemployment unemployment rate; growth in Korea; Labor markets; Unemployment rate; Labor force; Labor force participation (search for similar items in EconPapers)
Pages: 23
Date: 2025-05-02
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