Impact of Employment Protection on Labor Market Duality and Productivity (in Korean)

This paper examines the impact of employment protection legislation(EPL) on the labor market duality considering multiple perspectives such as the temporary employment rate, the job tenure, and the wage decile ratio. Our empirical analysis also focuses on the relationship between EPL and labor productivity to evaluate the effect of employment protection on economic efficiency. The results from the panel data analysis of OECD countries show that, first, a relaxation of EPL for regular workers reduces temporary employment rate and increases job tenure, whereas, it has no significant effect on wage decile ratio. Second, strengthening EPL for irregular workers reduces temporary employment ratio, increases job tenure, and diminishes wage gap among the regular workers. Third, EPL for regular workers improves the labor productivity growth rate until it reaches a certain level, when the growth rate starts to decline. Fourth, labor market duality is more severe in Korea than it is in other OECD countries. Our empirical results show that it is necessary to continue to reduce the gap between employment protection for regular and irregular workers to resolve the labor market duality. It should be also noted that both excessive and under employment protection can negatively affect the labor productivity. Finally, further research should be conducted to find the reasons of the labor market duality in Korea and its solutions.