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BOK Working Paper No.2018-40, Labor Market Duality in Korea and Policy Responses

Economic Research Institute (82-2-759-5328) 2018.12.10 3645

Title : Labor Market Duality in Korea and Policy Responses

Author : Jeon, Byung-you(Hanshin University), Hwang, In Do(BOK), Park, Kwangyong(BOK)


This paper reviews the previous literature regarding the state and causes of labor market duality in Korea, provides brief empirical evidence on the existence of labor market duality, and suggests possible remedies for resolving the duality based on the experiences from four European countries which differ in the severity of the labor market duality. We confirm the existence of the duality based on the wage gap and immobility in two dimensions: large-small firms and permanent-temporary positions. Lastly, we suggest some countermeasures to mitigate the duality problem.

First, the government need to supervise the contracts between large and small firms to enhance fairness in the contracts. Second, employers and unions may consider a new wage negotiation system in which wages can be determined collectively within an industry. Third, it is necessary to remove blind areas in social insurance system and provide universal income support programs for low-income employees to guarantee the economic security.

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