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KDI Policy Forum
Impact of Regulating Non-Regular Employment on Firms’ Employment Decisions

November 19, 2018

PDF
KDI Policy Forum
Impact of Regulating Non-Regular Employment on Firms’ Employment Decisions

November 19, 2018

PDF
    1. Issues

    2. Institutional Background

    3. Significance of the 2007 Non-regular Employment Protection Law on Firms’ Employment Decisions

    4. Employer Survey on the Non-regular Employment Protection Law (Act on the Protection, etc. of Fixed-Term and Part-Time Workers)

    5. Summary and Conclusion
KDI Report VOD
In 2017, the government began making efforts to convert the employment status of workers in the public sector from non-regular to regular, in order to ease the duality of the labor market.

So, is this possible in the private sector?

To convert non-regular workers into regular workers in the private sector, an environment must be created in which firms are encouraged to take the initiative.

Accordingly, KDI conducted an analysis on the impact of the non-regular employment protection law in 2007 on the employment decisions of private firms.

Since the enactment of the non-regular employment protection law, firms are obligated to convert fixed-term workers to
non-fixed term after two years.

Firms are also prohibited from discriminating against fixed-term works.

So, what has happened to the employment in firms?

Despite an increase in the share of regular workers, there has been a decline in total employment while the use of other non-regular workers not protected by the law, such as contract workers, has also increased.

In addition, firms without a labor union experienced a relatively large increase in the number of regular workers while those with a union saw a marked rise in that of other non-regular workers.

Then, what are the thoughts of the firms themselves regarding the regulations?

KDI questioned the CEOs of 1,000 randomly selected firms about their intentions to convert the status of fixed-term workers to non-fixed term or regular as well as their treatment of them.

The survey was then analyzed according to firm characteristics
such as difficulties in amending working conditions, number of employees, labor union, work complexity. etc.

With all other variables constant, the analysis found that firms that had more difficulties in amending working conditions,
including wages, working hours and welfare, were more unfavorable towards converting to regular status and to equal treatment.

Also, when variables such as difficulties in amending working conditions were controlled, the presence of a labor union had no significance in the conversion and fair treatment of non-regular workers.

This implies that perceptions about amending working conditions
has more bearing than whether there is a labor union.

(Interview with the author)
Policies on non-regular employment thus far have mainly centered on lawfully regulating the use of non-regular workers. However, the regulation alone cannot resolve the dual structure of the labor market and may even escalate unemployment and outsourcing.

Conventional notions about labor flexibility needs to be shifted away from employment to working conditions, which includes wages and working hours, to evenly promote job stability for the workers and flexible labor management needed by firms.
■ Regulations on the use of non-regular workers can encourage the conversion to regular workers and reduce firms’ labor use. They can also increase the use of non-regular employment types that are not subject to the law.

- An analysis on the impact of the non-regular employment protection law (2007) on firms’ employment decisions found that regular employment increased and non-regular employment (fixed-term/agency workers who fall within the scope of the law) decreased.

- However, total employment, including non-regular workers, dropped slightly and the use of nonregular workers (contract workers etc.) not subject to the law increased.

■ The impact of regulating the use of non-regular workers on firms’ employment decisions can vary depending on the degree of rigidity in working conditions for regular employees.

- Analysis on the effect of the non-regular employment protection law by firm characteristics showed that conversion to regular status was lower and the use of non-regular workers not subject to the law was higher among firms who believed that the working conditions for regular employees were highly rigid.

■ To fulfill the intended goals of the law, measures to ease the rigidity of working conditions for regular employees must be sought.

- The conventional concept of labor flexibility needs to be extended to cover working conditions (wage, working hours) to evenly promote workers’ demand for job security and employers’ need for flexible labor management.
 
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The Department of Macroeconomics is conducting researches on the macro economy and macroeconomic policy, particularly focusing on suggesting the analysis of macroeconomic trends and current status of the economy at home and abroad, the economic forecast, and the policy direction of the macro economy. The Department is also in charge of establishing, sustaining and maintaining various econometric models, based on which it analyses policy effects and develops a long-term economic forecast.

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