Explaining the Cyclical Behavior of the Korean Labor Market (in Korean)

The Korean labor market is characterized recently by (1) more volatile employment and Out-of-the-Labor-Force (OLF) than unemployment and (2) employment much more correlated with OLF than with unemployment. Based on these facts, the role of the unemployment rate as a business cycle indicator would seem to have been weakened, and the significant amounts of employment fluctuations to be explainable primarily by the fluctuations of nonparticipation. In this paper, I evaluate existing models and modify the standard matching model. The distinction between search and OLF becomes clear, and the model generates the OLF-to-Employment transition without an assumption that nonparticipants are inactive searchers. Moreover, some parameters which determine the model dynamics are assumed to be time-varying. The modified model accounts quite well for the Korean labor market of the last two decades. Among other time-varying parameters, the stochastic nonparticipant's probability of entering the labor force, which co-moves with the state of the labor market, explains the Korean labor market. A quantitative analysis of the reduced-form dynamics shows clearly that a change in the participation rate is capable of generating the cyclical movements of employment, unemployment and OLF that we observe in the 2000-2007 data.