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Release of medium-to-long term outlook on respective agenda based
on the analysis of pending macroeconomic issues

KDI Review of the North Korean Economy

KDI Economic Outlook 2018-2nd Half

Analysis on the Increase in Unemployment Rates Since 2014

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SUMMARY ■ 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.

■ 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.

■ Policy efforts must be made to reduce other (age structure) mismatch unemployment which accounts for the majority of unemployment.
Report VOD
Unemployment is rising.
But, what is causing it?

Generally, unemployment occurs when there is not enough jobs or when there are vacant jobs but they are not well connected to the unemployed, referred to as a job mismatch.

Korea’s job deficiency and job mismatch has worsened since 2014.
The unemployment rate is on a continued increase and it has been rising even faster in recent years.

Accordingly, KDI conducted an analysis to examine the recent increase in the unemployment rate from both a job-deficiency and job-mismatch perspective.

Mismatch unemployment was divided into industry-level and other mismatch unemployment. The former occurs when unemployed workers are unable to move seamlessly across industry due to restrictions such as wages and information and the latter due to the age structure and other factors.

From 2014 to 2017, other mismatch unemployment took the largest share of the average unemployment rate during the period.

The order in which the factors influenced the fluctuations in the unemployment rate, however, which is vital to unemployment policies, was job deficiency, industry-level mismatch then other mismatch.

The results showed that the main cause of the rising unemployment rate in 2014 to 2017 was the industry-level mismatch and lack of jobs.

After 2015, the restructuring in the shipbuilding industry scaled down jobs in manufacturing while the housing boom meant that there was an ample supply in construction. This exacerbated the industry-level mismatch since the unemployed in manufacturing were unable to move smoothly into the construction industry.

Meanwhile, the economic slowdown, which started a year earlier in 2014, curbed the demand for labor.

In 2018, the unemployment rate is rapidly climbing.

Using up-to-date statistical data and the same analysis methods it was found that the changes in the current unemployment rate are being driven firstly by the lack of jobs then other mismatch and finally industry-level mismatch.

The restructuring of the manufacturing and service industries, recession in construction, and rising labor costs seem to be exacerbating the shortage of jobs.

With the exception of the third quarter of 2018, the unemployment rate has become very sensitive to economic fluctuations.

(Interview with the Author)
Analysis results reveal that the rise in Korea’s unemployment rate since 2014 can primarily be explained by the industry-level mismatch and lack of labor demand. In 2018, particularly, the lack of labor demand became more severe. To resolve the unemployment issue, the government must promote the labor demand from existing firms through expansionary aggregate demand policies while supporting the entry of new firms in order to establish an environment where more jobs are created. Meanwhile, the rigidity of wages and working conditions must be eased to reduce the industry-level mismatch. This will improve the labor market to enable workers to move smoothly between industries.
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