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Analysis on the Increase in Unemployment Rates Since 2014


KDI Brief No.155 (November 16, 2018)

Analysis on the Increase in Unemployment Rates Since 2014

Jiwoon Kim
Department of Economic Policy and Strategy
The unemployment rate increases (0.23%) in 2014-2017 can mostly be explained by industry-level mismatch and deficient labor demand with the latter having a bigger impact in recent times.
 · Demand-deficient unemployment is sensitive to economic fluctuations but this alone is not enough to explain some of the recent increases in demand-deficient unemployment.
 · Industry-level mismatch unemployment has been on an upward trend since 2014 but its contribution retreated by a small margin, pointing to a slight easing of the labor imbalance between different industries.
To alleviate the unemployment problem, labor demand must be promoted and more jobs created while labor market conditions are improved to reduce industry-level mismatch unemployment.
 · To encourage labor demand, government policies should focus on expanding aggregate demand and providing consistent efficient support to innovative firms to create new labor demand while fostering the high value-added services industry in the mid- to long-term.
 · To reduce industry-level mismatch unemployment, the rigidity of wages and working conditions need to be alleviated to ameliorate the labor market environment so that unemployed workers can move across industries more easily.
 - The rigidity of wages and working conditions needs to be eased led by larger enterprises and the public sector. Additionally, unfair transaction practices between contractors and subcontractors can be another cause of rigidity. As such, government efforts should be continuously made to establish a fairer labor market.
 - Flexible wages and adjusted working conditions should be applied in line with changing technology levels to provide workers with more incentives to acquire new job skills that are in demand.
Policy efforts must be made to reduce other (age structure) mismatch unemployment which accounts for the majority of unemployment.
 · The increase in the number of senior unemployed workers is an important factor in other mismatch unemployment. Thus, employment services for seniors must be improved in order to disentangle the mismatch in the labor market for seniors.
 · With fairness guaranteed, more efficient recruiting procedures should be developed that could effectively reduce the problems arising from information asymmetry between employer and job seeker.
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