Analyzing Defined Contribution Pension Reform in Korea Using a General Equilibrium Model / SEUNG-RYONG SHIN

Korea’s National Pension Fund (NPF) is projected to be in deficit by the 2040s and exhausted by the 2050s. Increasing contribution rates may be unaffordable, prompting consideration of structural reforms, particularly shifting from a defined benefit (DB) to a defined contribution (DC) system. The DC system links benefits to contributions and investment returns, ensuring financial stability but raising concerns about income adequacy and redistribution. This study uses an overlapping generations model with heterogeneous agents to assess these reforms. By 2070, demographic changes will make the DB system unsustainable without substantial government subsidies, adversely affecting taxes, income, and savings. Conversely, the DC system would remain balanced without subsidies, resulting in lower interest rates, higher wages, and better economic output. The model shows that the DB system would require an annual subsidy of 11.3% of GDP at a 9% contribution rate by 2070, while the DC system would be self-sufficient. Even with lower returns, the DC system could be more efficient and equitable with partial subsidies, improving economic outcomes and reducing inequality.

Post-closure Career Paths of Self-Employed Workers / MINSUB KIM

This study documents self-employed workers’ characteristics associated with their career paths after a business closure in order to improve employment insurance for such workers. Utilizing work history data from the Korean Labor & Income Panel Survey, a competing-risks regression model is adopted in order to study how self-employed workers’ career paths after unemployment (i.e., business closure) vary according to their characteristics. The findings suggest that the post-closure career paths of self-employed workers are associated with (i) their revenue and income, (ii) the individuals’ demographic characteristics, and (iii) the industry in which they operate. Several policy implications for employment insurance that better caters to the needs of self-employed workers are derived from the empirical results.

Product Pioneers and Followers’ Choices on New vs Existing Plant to Product New Products: Evidence from Korean Manufacturing and Implications on Learning Spillovers / Chin Hee Hahn

This paper examines whether product pioneers differ from product followers in their decision to establish a new plant to product a new product, utilizing a firm-plant-product dataset for Korean manufacturing from 1990 to 1996. We find that followers are more likely to establish a new plant rather than utilize existing plants to product a product which is new to the plant. We also find that establishing a new plant is accompanied by a larger investment than utilizing existing plants. These results seem consistent with the existence of pioneer-to-follower learning spillovers, possibly in the sense that followers face less uncertainty about the future profitability of the new product.

The changing relationship between labor market conditions and inflation in Korea / Joonyoung Hur·Minsok Chae

This paper examines the time-varying relationship between the labor market, inflation, and monetary policy, particularly in light of recent high inflation and a tight labor market, with a focus on data from Korea. Analyzing data from July 2009 to June 2023, we find that the impact of the job vacancy rate ― an indicator of labor market conditions ― on inflation has gradually increased over time. Furthermore, the responsiveness of inflation to changes in labor market conditions is found to be greater during periods of high inflation compared to low inflation. Lastly, the influence of monetary policy changes on the job vacancy rate is particularly pronounced during recessionary periods and after the COVID-19 pandemic. These findings suggest the possibility of convexity in the relationship between the labor market and inflation in Korea. In such a scenario, raising interest rates during high inflation could lead to a relatively larger decrease in inflation than in job vacancies, which could create a favorable situation for monetary policy management.