New Labor Market Challenges in Korea

Yong-seong Kim yongkim@kdi.re.kr Head , Policy and Research Division Public and Private Infrastructure Investment Management Center
Sep 2011

PIMAC

1. Economic Growth
2. Labor Market Challenges
(1) Growth and Employment (2) Jobs for Youth (3) Labor market segmentation

3. Income Inequality Rising and Bi-polarization 4. Conclusion

1. Economic Growth
Economic growth enhances the living standards and lowers poverty

Increase in the per capital income of Korea Reduction in the absolute poverty rate
[Fig] Per capital GDP
(US = 100) 60 50 40 30
40 100

[Fig] Poverty Rate

80

60

20 10 0 1970 1975 1980 1985 1990 1995 2000 2005

20

0 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

2. Labor Market Challenges(1) : Growth and Employment

Growth and Employment relationship weakened

Elasticity of employment with respect to growth decreases Rate of growth is projected to slow down Concerns about jobless growth

Elasticity of employment w.r.t. growth

Year 1998 2002 2006 2007 All industries 0.88 0.40 0.26 0.27 Manufacturing 1.73 -0.08 -0.19 -0.22 Services 0.68 0.51 0.61 0.50

2. Labor Market Challenges(1) : Growth and Employment

[Fig] Predicted Rate of growth
5.0

4.5

4.0

GDP

Per capita GDP

3.5

3.0

2.5

2.0

1.5

1.0 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039

2. Labor Market Challenges(2) : Jobs for Youth

Troubles with youth employment

Discouraged youth and low labor market participation First-out and last-in First-out and last-in
2009 2009 2009 2010 2010 2010 youth -5.1 0.34 -3 0.62 -1.9 0.36 -0.3 0.76 -1.4 2.48 -1.1 2.09

[Fig] labor market participation

80

70

60

50

prime age

40

Y-T-Y changes(%)

30

20

10

Australia

Germany

France

Canada

Norway

U.S.A

Korea

Italy

Japan

U.K

2. Labor Market Challenges(2) : Jobs for Youth

long-term unemployment
[Fig] Incidence and duration of youth unemployment
4. 4 4. 2 4 3. 8 0. 27 3. 6 0. 26 3. 4 3. 2 3 2003 2004 2005 2006 2007 2008 2009 2010 0. 25 0. 24 0. 23 0. 31 0. 3 0. 29 0. 28

# of month in unemploy ment

% of unemploy ed

2. Labor Market Challenges(3) : Labor market segmentation

Labor market segmentation between permanent and temporary jobs

Increase in temporary workers

Job tenure: permanent 6 years vs. temporary 2 years

Differences in participation and hours of job training

[Fig] Percentage of temporary workers
54. 00 52. 00 50. 00 48. 00 4 46. 00 3 44. 00 42. 00 40. 00 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 2 1 0 8 7 6 5

temporary w orker

unemploy ment rate

2. Labor Market Challenges(3) : Labor market segmentation

Job training: Permanent vs. Temporary
Permanent Temporary

participation rate of job training(%)

hours of job training(hrs)

36.4
14.5

24.7
8.5

Gaps in the terms and conditions of employment

wage of temporary worker: 60% of permanent workers wage social insurances coverage of temporary workers is 40% while 70~80% of permanent workers is covered

2. Labor Market Challenges(3) : Labor market segmentation

Gap in wages and Salaries
Wages and Salaries(KRW 10,000)
2001. 8 2003. 8 2005. 8 2007. 8 2008. 8 2009. 3 permanent 155.9 178.6 184.6 191.6 193.9 192.8 temporary 99 109.4 115.6 121.8 118.1 109.6

Gaps in the coverage of social insurances

Pension coverage(%)
permanent 2001. 8 2003. 8 2005. 8 2007. 8 2008. 8 2009. 3 63.2 70.8 75.7 76.3 77.3 78.7 temporary 22.2 30.5 36.6 40 39 37.6

Health Insurance(%)
permanent 65.8 72.5 75.9 76.7 78 79.5 temporary 24.2 32.6 37.7 42.5 41.5 41

Unemployment Insuracce(%)
permanent 56.9 59.7 63.8 64.3 65.8 67.3 temporary 21.6 29.2 34.5 39.2 39.2 39.1

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3. Income Inequality Rising and Bi-polarization

Income inequality rising and polarized

Disappearing the middle class Percentage of Income class

1994 upper middle low 21.0 70.2 8.8 2000 22 66.1 11.9 2002 22.6 65.1 12.4 2004 22.5 63.9 13.6

Income inequality and polarization become a serious problem

[Fig] Income inequality and polarization
115 115 110 110

105

105

100

100

95

95

90 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

90 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

11

G ini

W olfson index ()

G ini

EG R (1)

3. Income Inequality Rising and Bi-polarization

No sign to improve income distribution in near future

Rate of income growth by quintiles

Rate of real income growth Year 1st quintile 2nd quintile 3rd quintile 4th quintile 5th quintile

2004 2005 2006 2007 2008 2009 2010 average

0.99% -3.53% 1.36% -0.37% 1.30% -1.18% 5.13% 0.50%

-0.30% 0.37% 1.19% 2.31% 0.58% -0.09% 5.42% 1.34%

1.05% 1.23% 1.86% 2.26% 0.86% -0.16% 3.26% 1.47%

2.68% 1.09% 3.46% 1.90% 0.83% -0.95% 2.32% 1.61%

3.72% 2.21% 2.81% 3.88% 1.80% -3.22% 1.42% 1.78%

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4. Conclusion
Economic growth has positive impacts

enhancing living standard

reducing absolute poverty

Recent socio-economic challenges

Jobless youth, and labor market segmentation

Income distribution becomes unequal and polarized

Changes in labor market and income distribution mount social tensions

For sustainable growth, the challenges need to be addressed immediately and effectively

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