Labor Market Rigidity at Home and Multinational Corporations’ Flexible Task Reallocation Abroad

JaeBin Ahn, Jaerim Choi () and Sunghoon Chung

No 10114, Policy Research Working Paper Series from The World Bank

Abstract: An unprecedented regime change following the 2017 presidential impeachment led to a dramatic shift to more rigid labor market policies in the Republic of Korea, represented by consecutive double-digit hikes in the minimum wage in the next two years. Using a firm-level data set with detailed information about foreign affiliates for 2013~19, this paper assesses the employment consequences of stricter labor market regulations. The empirical evidence uncovers a relatively unexplored mechanism through which domestic labor market rigidity can potentially reduce domestic employment as multinational firms with flexible internal networks reallocate tasks across borders.

Date: 2022-06-29
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