IMF Working Papers

Advancing Labor Market Reforms in Korea

By Stella Tam, Xin Cindy Xu

August 23, 2024

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Format: Chicago

Stella Tam, and Xin Cindy Xu. "Advancing Labor Market Reforms in Korea", IMF Working Papers 2024, 183 (2024), accessed December 22, 2024, https://doi.org/10.5089/9798400289026.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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.

Subject: Active labor market policies, Employment, Employment protection, Labor, Labor market reforms, Labor markets

Keywords: Active labor market policies, Advancing labor market, Deregulation, Duality, Employment, Employment protection, Labor market duality, Labor market reforms, Labor market rigidity, Labor markets, Policy condition, Reform shock, Wage system, Working hours

Publication Details

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