KDI - Korea Development Institute - RESEARCH - Research Areas

Summary

Policy Study KOR Income Support in Response to Labor Market Shocks: Korea‘s Basic Livelihood Security System

This study examines how labor market conditions and labor policy changes affect benefit receipt under Korea’s National Basic Livelihood Security (NBLS) system. Given the substantial coverage gaps in employment insurance, NBLS serves as the last-resort safety net for low-income individuals who are able to work. Assessing its responsiveness to economic shocks and policy changes is essential for evaluating the effectiveness and limitations of the current income support system.

First, the study analyzes the responsiveness of NBLS benefit receipt and expenditures to key labor market indicators, such as the unemployment rate and the employment rate. The results show that, overall, NBLS has not exhibited meaningful counter-cyclical responsiveness to labor market fluctuations. Although a modest increase in benefit responsiveness to the unemployment rate is observed following the 2015 reform, responsiveness remains broadly limited ― even during the COVID-19 period. However, in contrast to the weak correlation with the aggregate employment rate, declines in the employment rate of middle-aged unpaid family workers show a clear association with increases in NBLS receipt. These findings suggest that NBLS has limited responsiveness to labor market fluctuations among the working population, though it appears responsive for specific vulnerable groups such as unpaid family workers.

Second, the study examines the effects of minimum wage increases ― a key labor policy targeting vulnerable workers ― on NBLS benefit receipt. The analysis shows that sharp minimum wage hikes increased both overall NBLS receipt and livelihood benefit receipt, particularly among middle-aged individuals. Monthly analyses that control for other NBLS reform effects also confirm that minimum wage increases raised benefit receipt among the working-age population. Moreover, this increase was driven primarily by new entrants to NBLS rather than by a slowdown in exits.

These findings align with the earlier results showing that NBLS receipt is particularly responsive to labor market shocks among certain vulnerable groups, such as middle-aged unpaid family workers. Previous studies have shown that minimum wage increases reduce employment rates among vulnerable groups in the labor market, including the self-employed and unpaid family workers. Taken together, the analysis suggests that employment shocks experienced by unpaid family workers may constitute a key channel through which NBLS benefit uptake rises ― particularly among the middle-aged population.

This paper emphasizes the importance of establishing and strengthening an income support system that is responsive to labor market dynamics, especially in light of anticipated structural changes and labor policy reforms. Moreover, because labor and welfare policies often target overlapping populations and interact in practice, it is essential to carefully consider these interconnections in the design and implementation of related policies.

Summary

KDI FOCUS Drivers of the Growth of Marginal Part-Time Work and Policy Recommendations

Marginal part-time work has risen rapidly in South Korea’s labor market, driven by a policy structure in which labor costs increase sharply at 15 hours per week. Policy adjustments are needed to moderate the excessive cost differential at a specific working-hour threshold.

- Among wage workers, the share of marginal part-time workers―defined as those working fewer than 60 hours per month―more than doubled, rising from 3.7% in 2012 to 8.5% in 2024.

- Social insurance coverage remains low for marginal part-time workers, with few signs of improvement.

- The rapid expansion of marginal part-time work means that jobs outside the worker protection framework are increasing, calling for policy attention.

- Because many worker protection schemes apply only to workers with contractual hours of 60 or more per month, marginal part-time work falls within a blind spot of the worker protection framework.

- The cost discontinuity at 60 hours per month creates incentives for employers to hire marginal part-time workers.

- Since the 2010s, compliance with worker protection schemes for workers employed at least 60 hours per month has improved.

- Improved compliance with worker protection schemes has stimulated the expansion of marginal part-time work.

- Improved compliance with worker protection schemes is empirically correlated with the expansion of marginal part-time work and explains a substantial share of that increase.

- Improved compliance with worker protection schemes may reflect greater public awareness and understanding of these schemes.

- The labor market structure with a sharp cost discontinuity at 60 hours per month warrants adjustments.

- While revisiting the weekly holiday allowance is necessary to mitigate the cost differential that encourages both marginal part-time work and long working hours, adjustments should be framed as a longer-term objective and pursued
cautiously.

- The following principles should guide the formulation of a policy mix: set eligibility criteria in light of the overall cost structure; proceed gradually and combine policy measures to mitigate adverse effects; avoid placing disproportionate adjustment costs on specific groups; and conduct sufficient social dialogue and institutional review.

Summary

Research Monograph KOR Study on the Efficient Utilization of Human Resources in the Era of Population Decline

As South Korea experiences a demographic decline, the labor market must swiftly adapt to mitigate its economic impact. Expanding the participation of underutilized groups―such as older workers, people with disabilities, women, and immigrants―can help address its shrinking labor force. However, their underutilization stems from a complex interplay of multiple factors, and poorly designed policies for their economic engagement may lead to unintended consequences. A thorough, nuanced understanding of each group's unique challenges and circumstances is essential for setting realistic priorities for effective policy intervention.

For older workers, effective labor market integration demands both targeted support and phased, comprehensive labor market reforms. In an aging society, maintaining workforce participation or facilitating reintegration is increasingly important, even if individuals experience disabilities over their lifetime. Additionally, addressing the underutilization of women requires not only tackling work-family balance challenges during childbearing and childcare but also gender segregation across industries and occupations. Meanwhile, the growing presence of foreign-born workers, particularly long-term residents, should be carefully paced to minimize potential sociocultural disruptions.

Short-term policies (within five years) should prioritize productivity growth and attracting foreign talent. Mid-term initiatives (five to ten years) should focus on structural labor market reforms. Long-term investments (over ten years) should strengthen education and skills development while fostering gender inclusivity and social integration.

Summary

Policy Study KOR Work Environment for Work-Family Balance

This study investigates the gender-unequal impacts of marriage and having children on labor market outcomes in South Korea, focusing on the associated penalties (termed marriage penalty and child penalty, respectively) and the work environment characteristics that may contribute to these effects. A difference-in-differences event study method finds that marriage and child penalties are substantial and enduring in employment and earnings. Moreover, international comparison with European countries and the US indicates that in Korea, these penalties mostly arise from the extensive margin (i.e., employment) rather than the intensive margin (i.e., hours worked or wage). This study further examines whether these penalties correlate with occupational working hours and time pressure. The results show that the marriage penalty is less severe for women in occupations with shorter working hours and less time pressure. Thus, considering Korea's long, inflexible working hours and underutilized family policies, these findings underscore the need for a work environment that actively encourages adjustable work schedules and family-friendly policies to advance women’s careers and promote healthy work-family balance.

Summary

Research Monograph KOR The Impact of Artificial Intelligence on the Labor Market and Policy Implications

This report provides an overview of the recent advancements in artificial intelligence (AI) and examines its potential to automate jobs in the Korean labor market. Through an analysis that merges expert assessments of AI capabilities with the skill profiles of occupations in Korea, it is found that, as of 2023, 38.8% of current jobs are at risk of having over 70% of their tasks automated. Predictions for 2030 suggest that nearly 90% of tasks across 90% of existing job types might be subject to automation, if the current task structure should remain as it is.

Nevertheless, the technical feasibility of automation does not directly translate to an imminent risk of automation. As of the end of 2021, only 2.7% of private firms with more than ten employees had adopted AI according to official statistics. When considering the differential AI adoption rates by firm size, it is estimated that about 10% of the workforce is exposed to AI.

In pursuit of a more nuanced understanding of the actual risk posed by automation, this research delves into the impact of increased AI exposure within local labor markets. The findings suggest that while AI's introduction does not meaningfully affect total employment, it tends to lower earnings, with women's average earnings disproportionately affected. More granular analyses indicate that an increase in AI exposure, driven by plausibly exogenous factors, has primarily resulted in diminished employment and earnings opportunities for younger workers at the nascent stages of their careers.

Drawing from these findings, this report proposes policy recommendations to navigate the challenges posed by AI in the labor market effectively.

Summary

Policy Study KOR Changes in the employment structure and income gap before and after COVID-19 : Analysis using Quarterly Data of KLIPS

COVID-19 first appeared in Korea in January 2020, reshaping our daily lives over nearly three years. The pandemic exerted a substantial influence on the labor market, resulting in a decline of 200,000 to 400,000 jobs in March 2020 compared to the same month the previous year. By January 2021, when the pandemic peaked in Korea, job losses approximated 1 million. Nevertheless, from March 2021 onward, employment trajectories showed a rapid ascent, and by September 2022, indicators seemed to have returned to pre-COVID levels.

Against this backdrop, this report poses three research inquiries. First, has the employment structure of our labor market undergone any transformation before and after the COVID-19 disruption? Second, while the quantitative recovery of employment is observed, has its quality, i.e., wage (income), been adequately restored to its preceding state? The purpose of these two questions is to determine if the employment shock caused by the pandemic disproportionately affected certain worker cohorts. The third query endeavors to identify factors external to the pandemic that might have exerted influence on the labor market, specifically exploring potential reasons for the observed deviation in recent employment patterns from historical trends.

This study sourced datasets spanning the 18th (2015) to the 24th (2021) series of the Korean Labor & Income Panel Study (KLIPS). The annual data was restructured into a quarterly format, thereby facilitating an analysis of employment dynamics across pre- and post-COVID intervals. Quarterly employment figures were derived from individual employment records curated by KLIPS to examine labor state transitions and associated income fluctuations within the quarterly timeframe. This quarterly analytical paradigm offered an advantage in capturing more short-term job transitions than annual data might have.

Summary

Policy Study KOR A Study on Job Displacement of Middle-Aged Male Workers During Economic Crisis in Korea

This study explores long-term consequences of unexpected job displacement among middle-aged male workers during the 1997 Asian Financial Crisis in Korea. Utilizing datasets from the Korean Labor and Income Panel Study (KLIPS) and Korean Longitudinal Study of Aging (KLoSA), the research examines this cohort's work trajectories, socioeconomic status, and health implications. The study further investigates the intergenerational impacts of job displacement, with a spotlight on education expenditure, education attainment, and labor market outcomes of the children of the affected workers.

The findings reveal that these workers could not regain their pre-crisis employment levels, and their job quality declined due to repeated cycles of unemployment and reemployment. This trend shortened their active years in the workforce, leading to decreased pension contributions and reduced income levels in their later years. Moreover, job displacement adversely influenced their mental well-being, with a marked increase in depression rates within this group. Lastly, children of displaced fathers are observed to spend less on education. They display lower enrollment rates in higher educational institutions and often lean towards majors with more direct employment prospects. Economically, these children's annual earnings are roughly 9.4% beneath those of their peers whose fathers remained insulated from job displacement during the crisis.

Summary

KDI FOCUS Women’s Career Interruptions and the Declining Fertility Rate in South Korea

In South Korea, more women are postponing or forgoing childbirth due to concerns about career interruption. Their conscious decision to refrain from motherhood is estimated to be responsible for about 40% of the decrease in the fertility rate. In the face of the world’s lowest fertility rate, Korea needs to overhaul its policies to better support work-life balance, enabling parents to maintain their careers while raising children.

- Traditional economic theory explains the decline in fertility rates as a result of the increase in women’s opportunity costs.

- Since the 2000s, a positive correlation between women’s labor force participation rates, income, and fertility rates has been commonly observed in high-income countries, which appears to be closely associated with the extent to which women (mothers) can balance work and family life.

- South Korea’s low fertility rate may have stemmed from the disproportionate burden of childcare on women, combined with the persistent difficulty in balancing work and family life, leading women to postpone or forgo childbirth.

- If the presence of children significantly affects women’s probability of career interruption, the number of women who forgo childbirth while maintaining their careers due to these concerns may increase.

- If young women choose to have children, their probability of career interruption increases by about 14%p, leading to a higher likelihood of experiencing a substantial level of economic loss throughout their lifetime.

- Since the mid-2010s, Korea’s total fertility rate has rapidly decreased, as the gap in career interruptions based on parenthood status has widened.

- Recently (2013~19), the gender employment gap has narrowed. Still, this converging trend has been limited to the young without children, ironically increasing the women’s opportunity costs for choosing to give birth. This increased child penalty is estimated to account for about 40% of the overall decline in the fertility rate.

- Policies aimed at preventing career interruptions for women with children are expected to contribute to raising the fertility rate by reducing the number of women who delay or forgo childbirth.

- Policies that mitigate career interruptions for women with children can increase labor supply and prevent the erosion of irrecoverable human capital, thereby not only helping to raise the fertility rate but also promoting macroeconomic growth.

Summary

KDI FOCUS Restoring Labor Market Functions to Address Job Insecurity among Middle-Aged and Older Workers

In the Republic of Korea, middle-aged and older workers experience unusually high job insecurity due to limited labor demand for them. To address this issue, labor market policies and practices must be reformed to make it easier for firms to hire these workers as regular employees. Instead of imposing regulatory mandates, it is crucial to enhance the functioning of labor markets to reduce involuntary early retirements among older workers and prevent career disruptions for middle-aged women. These reforms will also facilitate the gradual extension of the mandatory retirement age, a necessary step in light of Korea’s rapidly aging population.

- Compared to the U.S., where employment protection is minimal, Korea exhibits greater employment instability among older workers and middle-aged women.

- On the surface, the cause of job insecurity among middle-aged and older workers appears to be the increasing share of nonregular employment.

- However, the more fundamental cause lies in the insufficient demand for middle-aged and older workers in regular employment.

- In Korea, wage increase based on seniority is steep, employment protection is strong, and retirement occurs comparatively early.

- Given the current structure of the labor market, additionally increasing the retirement age threshold is not only unjustified but also unlikely to achieve the intended outcomes.

- Today’s labor market framework hampers reentry into the job market, serving as one of the primary causes of prolonged career interruptions for women, thereby contributing to low birth rates.

- Korea’s labor market urgently needs structural reforms that enhance stability through market forces rather than legal mandates to increase the proportion of individuals with ongoing employment until retirement. Implementing such changes could facilitate further extensions of the mandatory retirement age.

- Specifically, key tasks involve lowering the reliance on seniority-based wages for regular employment, reducing uncertainty in the dismissal process, and enhancing protection and the employment safety net for non-regular workers.

Summary

Research Monograph KOR Providing Social Protection for Self-Employed Workers

This study examines whether expanding the pool of beneficiaries for unemployment insurance (UI) to the self-employed is a way to ensure better social protection. First, we document the self-employed’s income variability, job security, and job transition paths after a business closedown, also comparing these factors to wage earners. Second, we use model simulations to analyze the effects of mandatory UI for the self-employed on labor market tightness, fiscal soundness, and self-employment rate.

Our comparison of the self-employed and wage-earning employees, based on the Korean Labor and Income Panel Study (KLIPS) and the Survey of Household Finances and Living Conditions (SHFLC), yields the following findings: (1) the self-employed are constantly exposed to fluctuations in business income, which may lead to business failure; (2) there is no substantial difference between the self-employment duration of the self-employed and the employment duration of full-time employees; and (3) a significant number of self-employed individuals choose to start new businesses after their previous businesses close down.

Such results imply that the government may increase the coverage rate of the self-employed by increasing the unemployment benefit level or decreasing the contribution level without harming fiscal soundness. However, establishing an income verification system for the self-employed should proceed or coincide with expanding insurance coverage for self-employed workers to address pertinent concerns, including adverse selection due to lack of income information and moral hazard due to the difficulty of evaluating involuntary business cessation. Moreover, additional assistance is necessary for the self- employed who re-start businesses after closedown.

This study employs a model-based approach to estimate the impact of UI on entrepreneurs. Building on the standard search and matching framework, it incorporates the decision-making processes of entrepreneurs. A model-based approach offers several advantages, enabling analyses of the direct effects of policy changes on the economy and the indirect effects through entrepreneurs’ adjustment to those changes. Our results suggest that extending UI to self- employed entrepreneurs would lead to increased business closures and reduced hiring, causing a slack labor market and higher unemployment. This, in turn, would put pressure on the UI budget, and social welfare would decrease overall. Longer duration of unemployment and reduced government transfers offset increased welfare for former entrepreneurs from receiving UI benefits. However, the study also finds that social welfare can be improved by the government subsidizing UI contributions for entrepreneurs, especially when targeted financial support is provided to low-income entrepreneurs. In that case, UI for entrepreneurs achieves greater social welfare improvement than other social protection systems, such as unemployment assistance.

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