Author: Jeonghong Kim (Korea Institute for Industrial Economics & Trade)

In this paper, I analyzed the virtuous cycle regarding employment, production and wages at the regional manufacturing level. For this study, 233 primary local regions were classified according to their employment and wage levels, falling into 4 categories. There were 90 regions with high employment and high wage, 26 regions with low employment and high wages, 27 regions with high employment and low wages, and 90 regions with low employment and low wages.

Following classification, the correlation between employment and wages was analyzed, and the resulting correlation coefficient was 0.436 a little high. The correlation graph between employment and wages in the 233 primary local regions goes up and to the right, the symmetric pattern of a Phillips Curve. The result of the Granger Causality Test suggests that employment increases production, production increases wages, and wages increase employment.

Finally, an analysis was conducted on the possibility of the virtuous cycle of employment, production and wages in the primary local regions. Three linear regression and simultaneous models fit well and each independent variable, including employment, production and wages had significantly positive signs. So, if employment increases on the local level through regional industrial policy,  regional production and wages will also increase sequentially. In conclusion, the virtuous cycle in action in regional industry is clearly observable.