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The impacts of Dual Labour Markets on Unemployment and Productivity (in Korean)


  • Sun-Bin Kim

    () (Department of Economics, Yonsei University)

  • Yongsung Chang

    () (Department of Economics, Yonsei University and University of Rochester)

  • Taesu Kang

    () (Research department, The Bank of Korea)


It is now well-known that Korean labor markets are legally segmented into two tiers: one is for regular jobs and the other for non-regular jobs. Non-regular markets are characterized by lower wages and less restrictions on lay-offs. The expansion of non-regular jobs have two opposite impacts. It may reduce the labor costs and increase the total employment, while it may worsen the average welfare of workers which recently raise a major concern in Korean economy. This paper modifies the Mortensen-Pissarides matching model to evaluate the efficiency of the dual structure of the Korean labor markets. The quantitative analysis shows that non-regular jobs deteriorate efficiency but improve flexibility of the Korean labor markets. Policies that deteriorate the working condition of non-regular jobs, such as an decrease in the transition probability or an increase in lay-off probability, results in increases in job searchers and employments in the regular markets. As a result, the efficiency of the aggregate labor markets improves while the unemployment rate increases. Counterfactual labor market reforms that the dual labor markets are unified into a single market with non-regular jobs only or regular jobs only are also evaluated. Production, wages and unemployment rate are higher in the regular-jobs-only economy compared to non-regular-jobs-only economy.

Suggested Citation

  • Sun-Bin Kim & Yongsung Chang & Taesu Kang, 2016. "The impacts of Dual Labour Markets on Unemployment and Productivity (in Korean)," Economic Analysis (Quarterly), Economic Research Institute, Bank of Korea, vol. 22(1), pages 1-34, March.
  • Handle: RePEc:bok:journl:v:22:y:2016:i:1:p:1-34

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    More about this item


    Dual labour market; Regular worker; Non-regular worker; Search and matching model; Heterogeneous agent model;

    JEL classification:

    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J4 - Labor and Demographic Economics - - Particular Labor Markets


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