IMF Working Papers

Advancing Labor Market Reforms in Korea

Author/Editor:

Stella Tam ; Xin Cindy Xu

Publication Date:

August 23, 2024

Electronic Access:

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Summary:

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.

Series:

Working Paper No. 2024/183

Subject:

Active labor market policies Employment Employment protection Labor Labor market reforms Labor markets

Frequency:

regular