KDI - Korea Development Institute - RESEARCH - Research Areas

Summary

Research Monograph KOR Green Transition Strategy and Implementation

It is imperative for the Republic of Korea to prioritize the development of elaborate green transition strategies and implementation plans. In light of this urgency, this study offers ten chapters addressing select issues on green transition, which provide policy recommendations drawn from identification of problems, assessment of current policies, and empirical analysis.

Chapter 2 (Dr. Yong Hyeon Yang) assesses the national greenhouse gas emission reduction plan the Korean government announced in Oct. 2021. It finds the sectoral strategies to be insufficient for the stated targets and suggests that an energy transition ambition has to be increased as either targets have to be decreased in other sectors or there could be a need for more extensive electrification. Chapter 3 (Prof. Wonhyuk Lim) offers insights on energy transition strategies and their implication for the electricity industry. Periodical simulations should be conducted for multiple scenarios, and the overall cost of transition, including the expenses for networks and standby facilities as well as the levelized cost of energy, should be minimized. Accordingly, transition and phase-out of fossil fuel plants should be systematically planned in stages.

Chapter 4 (Dr. Yeochang Yoon) points out the limitations of the Korean emission trading system (ETS) and presents potential solutions. The current restrictions on banking need to be relaxed to keep the ETS allowance prices from dropping, but such adjustments should be introduced gradually to prevent a sudden decline in supply. Chapter 5 (Prof. Hyungna Oh) raises a possibility of insufficient investment in decarbonization technologies due to first-mover disadvantages. It advocates introduction of carbon contracts for difference to incentivize R&D in green technologies, especially when carbon prices are low or uncertain. Chapter 6 (Dr. Karam Jo) presents the empirical result that patents in some digital transformation technologies can increase patents in climate technologies by an average of 17.3% and underscores the need to promote such digital transformation technologies.

Chapter 7 (Dr. Junghyun Kwon and Dr. Joseph Han) reveals that elevated outdoor temperatures decrease working hours in an inequitable manner and deteriorate workers’ health. These observations imply that climate change could magnify income inequality. As such, protective measures for outdoor workers against high temperatures and support for their job transitions are crucial. Chapter 8 (Dr. Hyunseok Kim) proposes selective subsidies for regions heavily impacted by climate change and green transition, and highlights the necessity of assessing those impacts objectively. Most importantly, local governments should formulate transition plans in line with central government guidelines.

Chapter 9 (Prof. WooRam Park) indicates that a large portion of greenhouse gas comes from establishments with more than 300 workers, and in such industries as petrochemical and steel. It also shows higher carbon productivity in industries with lower greenhouse gas emissions and establishments using less energy. Chapter 10 (Dr. Joseph Han) reveals the empirical result that firms who entered in the first stage of ETS had significantly lower greenhouse gas emissions, energy usage, annual turnover, and employment than those who did in the second stage. The performance of these firms was influenced by the design of the ETS, for example, on what basis the allowances were assigned free of charge or for a fee. Hence, policy design for green transition should pay particular attention to its effects on businesses and employment. Lastly, Chapter 11 (Dr. Sora Chon) observes that the global green transition might trigger both green and energy inflation. Analyzing the effect of inflation factors on the Korean economy finds that such impacts vary based on whether inflation arises from a demand or a supply shock. Consequently, the Korean government's responses should differentiate between inflation factors that are demand-side and supply-side.

Summary

KDI FOCUS OECD Average Annual Hours Worked: Comparative Analysis and Implications

The OECD statistics on annual hours worked per person are often cited as evidence for Korea’s long working hours, but this in fact tends to be the result of the nation’s high proportion of self-employed workers and low proportion of part-time workers. When this distinct employment composition is taken into account, the difference between Korea’s hours worked and those of other OECD countries turns out to be much less significant compared to previous estimates. However, Korea’s hours worked do remain relatively longer even after such an adjustment. Therefore, it is important to figure out and thereby address underlying institutional factors of unproductive long working hours. Furthermore, flexible and choice-based working arrangements should be promoted for improving labor market efficiency.

- Since the proportion of self-employed and parttime workers differs from country to country, inappropriate to make direct comparisons of the average hours worked per person across different countries without considering such factors.

- Korea’s annual hours worked per worker are rapidly declining, primarily due to improvements in productivity resulting from economic growth and institutional efforts to reform long working practices.

- Annual hours worked per person tend to increase when the proportion of self-employed individuals among total employment rises, and decrease when the proportion of part-time workers increases.

- Compared to other countries, Korea shows longer annual hours worked per person due to a higher proportion of self-employed and a lower proportion of part-time workers. Controlling for these differences in employment composition, the gap in annual hours worked between Korea and other OECD countries falls by approximately 31%.

- However, even when accounting for the impact of the proportion of selfemployed and part-time workers, Korea remains among the nations with extended hours worked.

- Approximately 33% of the reduction in Korea’s annual hours worked per worker during 2010-2021 is attributable to the decrease in the proportion of self-employed workers and the increase in the proportion of part-time workers.

- Comprehensive and concerted policy efforts are necessary to facilitate a more inclusive labor market that accommodates diverse workforce groups, endorsing flexible working hours options and choice-based working arrangements.

Summary

KDI FOCUS Designing Social Protections for Platform Workers

In the expanding landscape of the platform economy, the rapid rise in the number of platform workers underscores a critical issue: the need for social protection for those not covered by conventional labor laws. Recognizing the transformative impact and significant societal value of the platform economy, it becomes essential to rethink the legal classification of platform workers, moving beyond the traditional "employee" versus "business owner" dichotomy. This paper argues that while platform workers might exhibit similar work patterns, the protection they receive should be proportionate to the labor monopsony power exerted by the platforms they associate with. A harmonized approach that aligns labor and competition policies is crucial to address these challenges.

- Today, platform labor is experiencing a swift expansion both in scope and magnitude.

- While the growth of platform workers presents numerous benefits, recent developments have spotlighted a few notable concerns.

- The discourse surrounding social protection for platform workers has been active, primarily revolving around the question of acknowledging their status as workers.

- The approach needs to be about reconciling the characteristics of the platform economy with genuinely effective protection for its workers.

- By focusing on the labor monopsony inherent to platforms, we can objectively assess the necessity of social protection for platform workers, incorporating discussions on both labor and fair trade policies.

- In this paper, ICT software developer platforms and delivery app platforms are investigated as representative examples of web-based freelance platforms and locally-based labor provision platforms, respectively.

- While the labor supply elasticity offers an empirical estimate of monopsony power, the platform economy necessitates a broader examination of additional factors.

- As for in-house contracts in the ICT developer platform, an empirical analysis shows that its labor monopsony power is on par with that of the typical labor market.

- In the delivery app market, it is imperative to examine the competitive dynamics among platforms from the standpoints of delivery app providers and consumers. Of particular interest is understanding the reasons and frequency of individuals using multiple apps at the same time (multihoming), along with the ease of switching between platforms.

- From the consumer perspective, the entry of newer players and heightened competition among delivery apps have increased multi-homing and reduced market dominance.

- Delivery app riders generally view themselves as wage workers. While they enjoy considerable flexibility in tasks and working hours, they are also subject to significant ex-post oversight through performance evaluations.

- To ensure the effective protection of platform workers while allowing platform-driven innovation, policies must be both flexible and unified under the goal of curbing platforms' monopsony power over labor demand and preventing potential abuses.

Summary

Policy Study KOR Study on the Impact of Labor Policy on Human Resource Management

This study examines the impact of labor regulations on the human resource management practices of establishments through the introduction of the Non-Regular Worker Protection Law. Human resource management is one of the key factors that determine the performance of an establishment, and therefore, evaluating the impact of the labor policy on management practices will yield important policy implications.

The empirical results, acquired using the Workplace Panel Survey, suggest that the Non-Regular Worker Protection Law has had a limited positive impact on improving the human resource management of establishments. Although we find that the evaluation of managerial workers increased, the regulation overall had either a negative or limited impact on the adoption of task- and performance-based human resource management. Futhermore, there is no supportive evidence that the flexibility of work hours and tasks increased in response to the decrease in external numerical flexibility. Finally, the labor regulation failed to positively affect the efforts of establishments to maintain or enhance the human capital of their employees through training and education.

Summary

Policy Study KOR Technological Progress and Changes in Skill Structure in Korea

This study analyzes how recent digital-based technological advances are changing the skill structure of our labor market. Indeed, although it highlights the fact that fears over the possible threat of automation to future jobs are an exaggeration, it is important that such changes are understood and prepared against as they may change the composition of skill contents that jobs require. In addition, this study defines and measures 'job skills' by combining the various skills required for each job based on information from the dictionary of occupational titles, and uses these indicators to demonstrate and analyze the changes in the skill structure of the labor market during the 2008-2018 period. The key findings from the analysis are summarized below.

Firstly, while it is true that the relative demand for cognitive proficiency in the Korean labor market has grown since 2008, the pace has been modest compared to the rapid increase seen in the 1990s, especially in manufacturing. In particular, the recent decline in cognitive skills in professional jobs has raised concerns.

Secondly, by industry, the professional, scientific and technological services (M) and information and communications (J) sectors―which are closely tied to IT technology and considered leaders of the recent technological progress―have seen an improvement in cognitive skills. The same is true for the financial and insurance industries (K) and wholesale and retail sector (G), which are undergoing extensive industrial restructuring with fintech and platform technologies. On the other hand, the public sector saw its level of cognitive skills deteriorate significantly, particularly in the health and social services (Q) and public administration, defense and social security administration (O) sectors. Low-skilling in the public sector is mainly attributed to the rise in policy-driven, low-skilled public jobs.

Third, in terms of gender, occupational segregation still prevails, but the gender gap in cognitive skills is rapidly closing, suggesting that women’s job structure may have improved in terms of labor-market compensation during the analysis period.

And fourth, in terms of education level, the decline in cognitive skills was the greatest among the higher educated, i.e. those with a master’s degree or higher. This suggests that the gap has widened between the general supply-side skill index (worker's education level) and job skills. It also means that the function of education as an investment in human capital is waning.

Fifth, estimations of the returns of each skill type using the wage equation reveal that the yields of physical skills and sensory skills remain flat while the return on cognitive skills stalled and turned downward at its peak in 2013. Decreasing returns of cognitive skills mean that the supply of cognitive skills in the labor market has exceeded demand, which is not very beneficial to innovation activities. Essentially, the possibility cannot be ruled out that the recent advancements in technology may serve to replace certain cognitive skills. However, this effect cannot be discerned in this study, and further research is needed.

Sixth, according to an analysis of the mismatch between worker’s skills and job skills based on education level, nearly half of those in jobs (49.4%) have been classified as overeducated as of 2018―an increase of 7.7 percentage points in 10 years. In addition, the empirical analysis shows that excessive education has a consistently negative effect on wages, meaning that overeducation can cause considerable inefficiencies, not only for individuals, but also for the economy as a whole.

In all, it is clear that the changes in the technological environment have a significant impact on the composition of skills in the Korean labor market, but they are not so linear that they can be simply regarded as cognitive-skill-biased. Rather, the skill structure of the Korean labor market shows that, on the one hand, the cognitive skills of professional occupations have diminished and low-skilling has appeared in the public sector (labor demand), and on the other, that the oversupply of highly educated workers (labor supply) has led to lower returns on skilled labor. It should be noted that this situation is never favorable to technological progress.

Accordingly, policy efforts, such as fostering innovative industries, are needed to increase the number high-skilled jobs. Also, individuals must be encouraged to invest more reasonably in education by providing accurate information about the world of jobs. In particular, active measures should be formulated to establish an education system that is closely linked to the labor market, including adjusting the number of students by college major based on an understanding of the changes in skills requirements in the labor market.

Summary

Policy Study KOR A Study on Economic Causes of Long Working Hours

This study examines the economic causes of long working hours in South Korea. In particular, this study focus on the relation between the various labor market characteristics and working hours of the workers. To begin with, we use the firm-level data to examine the impact of the human resource management practice on the average working hours of workers. The empirical result suggest that the flexibility in employment adjustment is closely related with the shorter working hours of workers. The result therefore suggest that the labor market characteristic which is known to affect productivity and employment could also affect the working hours. In addition, we employ worker-level data to shed light on the relation between overtime work and regular rates of pay. We find a clear negative relation between overtime work and regular rates of pay. The result suggest that if the increase in overtime pay leads to the decrease in regular wage rate, then the increment in overtime rate could actually hinder the reduction in working hours.

Summary

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

■ 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.

Summary

Research Monograph KOR An Empirical Study on the Regulation of Maximum Duration of Fixed-Term Employment

This study examines the effect of regulation on the use of fixed-term contract workers on various outcome. In particular, the “Act on the Protection on Fixed Term and Part-time Workers,” in 2007, limited the maximum duration of fixed-term contract to two years.

In the first chapter, we explore how the fixed-term contract workers’ probability of being converted to regular workers or leaving the current employer changes with tenure. We find that the probability of being separated with current employer increases right before the maximum duration of a fixed-term contract. However, there is a heterogeneity in the increase across the size of the establishments and sector. In particular, we find a larger increase the probability in establishment with more than 100 workers, establishment with labor union, and in public and manufacturing sector. The results thus suggest that the potential negative impact of the regulation would be concentrated in the larger firms. Furthermore, we find that fixed-term contract workers’ cumulative probability of conversion to regular workers during the two years of tenure is small―only 3.7%. Moreover, although they are automatically regarded as “indefinite contract workers” by the law after two years of tenure, the improvements on training, severance pay and other labor conditions are minimal. Thus, our result suggest the fixed-term contract and regular workers are widely separated in South Korea.

In the second chapter, we conduct a survey to examine how the business would respond to the increase in the maximum duration of fixed-term contract to four years. Specifically, we survey firms’ hypothetical response to the increase in the maximum duration of fixed term contract. The empirical results suggest that the conversion of fixed-term workers to regular workers depend on labor flexibility. In particular, regardless of the length of maximum duration, business that lack labor flexibility would less likely to convert fixed-term workers to regular workers and more likely to terminate the contract. Furthermore, more than 90% of the firms respond that the increasing the maximum duration would not change the conversion rate of fixed-term workers to regular workers. However, we also find suggestive possibility that for the business with lack of labor flexibility, increase in maximum duration of fixed-term contract would increase the conversion rate.

In the final chapter, we examine the impact of the law on workers’ welfare which has been overlooked by previous literature despite its importance. Specifically, we examine the impact of conversion to “indefinite contract workers” on health outcome of the fixed-term workers. The empirical analysis suggest that the fixed-term workers experience improvement on subjective job security and health after being converted to “indefinite contract workers.” These improvement is more prominent among workers in establishment with more than 100 workers and among college graduates. However, we do not find any changes in behaviors such as smoking, drinking and excercise that can affect health outcomes. Furthermore, we do not find evidence supporting the improvement in wage and working hours after the conversion to “indefinite contract workers.” The result, thus suggest that the law improved subjective well-being of workers despite its limited impact on objective working conditions.

Summary

Policy Study KOR Determinants of Child Development in Korea and Policy Implications

In the wake of recent child-abuse cases, the Korean government released a parenting education package last March with the aim of teaching parenting skills and enhancing access to and specialization of parenting education. Accordingly, the Ministry of Gender Equality and Family decided to designate a ‘parent education week’ every year starting in 2016 and run various programs to encourage active interest and participation.

In order to empirically analyze the significance of the appropriate parental role, this study estimates how children’s cognitive and socio-emotional development are related to parental behavior (warmth and control) and stress, home environment, maternal depression and paternal involvement in child care.

Additionally, the relationship between mothers’ early return to work and children’s cognitive and socio-emotional development is analyzed in recognition of the fact that a large number of Korean women with preschool children leave their careers to spend more time on child care and household duties. This may be of special interest to women who are considering having children or planning maternity leave or returning to work and as such, must be taken into account when developing policies for work-family balance, women’s labor participation and education.

As far as is known, this is the first ever study conducted with regards to the relationship between child development and women’s return to the labor market and parents’ role after controlling the socio-economic characteristics of child

Summary

KDI FOCUS Evaluating the Social Security Subsidy Program in Korea

□ Social security subsidies in Korea were introduced in 2012 to reduce the coverage gap in social security. Despite the large fiscal cost, however, the subsidies have only a small effect on the social security coverage: For every 1,000 workers and their employers who are subsidized under the program, the program added just 15 workers covered by social security. Rather than pursuing costly subsidization policies, the Korean government needs to make serious efforts for more efficient collection of social contributions to close the coverage gap in social security.

- To reduce the coverage gap in social security, the Korean government began to provide subsidies for the social security contributions of low-wage workers and their employers in small establishments.

- The subsidy program matches workers’ and employers’ contributions to the national pension and the unemployment insurance scheme.

- About 0.9 million workers and their employers in 0.5 million establishments were subsidized by the subsidy program in 2015.

- For every 1,000 subsidized employees and about 600 subsidized employers, the subsidy program creates only 15 additional covered employees.

- Unlike similar active labor market policies adopted in several European countries, the subsidy program had no discernible effect on employment.

- The subsidy program can act as a tax rather than a subsidy depending on whether the uncovered worker contributes to the medical insurance scheme.

- The subsidy program is contradictory because it gives subsidies for participation in mandated schemes as if it was a choice initially.

- A large informal sector with a modest social contribution burden in Korea indicates a sizeable room to enhance administrative efficiency for reducing coverage gap in social security

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