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Macroeconomic Shocks and Dynamics of Labor Markets in Korea

Author

Listed:
  • Tae Bong Kim

    (Ajou Univer)

  • Hangyu Lee

    (conomics, Dongduk Women's University)

Abstract

A New Keynesian model with labor friction, in which involuntary unemployment can be endogenized, is estimated with the Korean macroeconomic data using a Bayesian estimation approach. The model is extended by specifying a small open economy with tradable and nontradable goods sectors to characterize the Korean labor market empirically. Results of empirical analyses based on the estimated model can be summarized as follows. First, the sectoral reallocation of labor plays an important role in the adjustment of the Korean labor market, which responds to macroeconomic shocks, particularly foreign shocks. Second, the historical decomposition analysis demonstrates that the cyclical fluctuations of unemployment in Korea are explained by key domestic shocks, such as domestic productivity shocks and preference shocks. A relatively small contribution of foreign shocks to aggregate labor market variables is partly caused by the sectoral shift of employment rather than extensive changes in aggregate employment and labor force

Suggested Citation

  • Tae Bong Kim & Hangyu Lee, 2016. "Macroeconomic Shocks and Dynamics of Labor Markets in Korea," Korean Economic Review, Korean Economic Association, vol. 32, pages 101-136.
  • Handle: RePEc:kea:keappr:ker-20160630-32-1-05
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    References listed on IDEAS

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    Cited by:

    1. Kang, Hyunju & Suh, Hyunduk, 2017. "Macroeconomic Dynamics in Korea during and after the Global Financial Crisis: A Bayesian DSGE Approach," International Review of Economics & Finance, Elsevier, vol. 49(C), pages 386-421.

    More about this item

    Keywords

    Small Open Economy; Labor Market; macroecnomic Shocks; Employment Rate;

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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