The Evolution of Wage Inequality in Korea

Youngsun Koh

No 2018-01, KDI Policy Studies from Korea Development Institute (KDI)

Abstract: Wage inequality in Korea has undergone several changes in 1980-2016. It fell in 1980-1994, rose in 1995-2007, and then fell again in 2008-2016. Different worker characteristics have had different impacts on wage inequality. In the early years, sex, age, and education were the three most important characteristics, but in later years, firm tenure became the most important one, followed by education and establishment size. The impact of each worker characteristic can be decomposed into price effect (the sensitivity of wage inequality to a marginal change in worker characteristics) and distribution effect (the impact of changing distribution of worker characteristics across wage quintiles). In the cases of sex and age, both price and distribution played important roles in reducing inequality. In the case of education, price was the main driver in all periods, reducing inequality in the first period (1980-1994), increasing it in the second (1995-2007), and again reducing it in the third (2008-2016). In the cases of tenure and establishment size, distribution contributed significantly to increasing inequality. Price is determined through the interaction between demand and supply. As for sex, the relative demand for male workers declined in all periods and particularly in the second and third periods, and accordingly their relative wage fell. As for age, the relative demand for older workers increased in all periods. But it was outpaced by the increase in supply, and as a result the relative wage fell for older workers. As for education, the relative demand for college graduates over high school graduates increased faster than the supply in the second period but not in the first and third periods. The relative wage of college graduates rose in the second period but not in the other periods…

Keywords: Wages; Labor Productivity; Wage Inequality (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:kdipol:201801

DOI: 10.22740/kdi.ps.e.2018.01

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