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Journal of Economic Theory and Econometrics
JETEM/계량경제학보/計量經濟學報/JKES
Journal of the Korean Econometric Society

The Post-Financial Crisis Labor Market in Korea: Has Its Flexibility Improved?

Vol.16, No.3, September , 99–131


English Version |  Korean Version
  •   (LG Economic Research Institute)

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Abstract  

This research analyzes whether the flexibility of the Korean labor market has improved following the financial crisis by looking at the change in employment flexibility and persistence of unemployment in response to business fluctuations. As analysis methods, this research first employs a simple model, which includes a dummy variable, the time- varying-parameter model, and a time-varying-parameter model with heteroskedasticity over time allowed. The results indicate that, employment flexibility, which reflects labor market flexibility in the short-term, has improved since the financial crisis. Flexibility can be assessed from a longer-term perspective based on persistence of unemployment and the results indicate that, on average, it has not eased compared to the pre-crisis period, but has weakened somewhat compared to the period just before the crisis. The implications of the research outcome for government policy on labor market flexibility are that future efforts need to be directed towards weakening persistence of unemployment through such means as vocational training, employment agencies and relaxation of restriction. In addition, by introducing a time-varying-parameter model, this research easily captures the general direction and structural changes of the estimated coefficient over time without specifying the point in time of structural change by continuously altering the estimated coefficient; and second, this research identifies the need for heteroskedasticity in order to account for the shock caused by the financial crisis when examining Korea's unemployment rate data.


Keywords
   Labor Flexibility, Persistence, Employment Flexibility, GDP Gap

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