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Macroeconomic Shocks and Dynamics of Labor Markets in Korea

Author

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  • Tae Bong Kim

    (Department of Economics, Ajou University)

  • Hangyu Lee

    (Department of Economics, Dongduk Women's University)

Abstract

A New Keynesian model with a labor market friction, where involuntary unemployment can be endogenized, is estimated with the Korean macroeconomic data using a Bayesian estimation approach. In order to characterize the Korean labor market more realistically, the model is extended by specifying a small open economy with tradable and nontradable goods sectors. The results of empirical analyses based on the estimated model can be summarized as follows. First, it is confirmed that the sectoral reallocation of labors plays an important role in the adjustments of Korean labor market responding to some macroeconomic shocks, particularly foreign shocks. Second, the historical decomposition analysis demonstrates that the cyclical fluctuations of unemployment in Korea are mostly explained by key domestic shocks such as domestic productivity shocks and preference shocks. A relatively small contribution of foreign shocks onto aggregate labor market variables is in part due to the sectoral shift of employment rather than changes in aggregate employment and labor force at extensive margins.

Suggested Citation

  • Tae Bong Kim & Hangyu Lee, 2015. "Macroeconomic Shocks and Dynamics of Labor Markets in Korea," Working Papers 2015-26, Economic Research Institute, Bank of Korea.
  • Handle: RePEc:bok:wpaper:1526
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    Cited by:

    1. DongIk Kang & Jinhee Woo, 2022. "How Effective are Automatic Stabilizers in Reducing Aggregate Volatility in Korea?," Korean Economic Review, Korean Economic Association, vol. 38, pages 5-42.
    2. 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.
    3. Yao Li & Yugang He & Renhong Wu, 2023. "Traversing the Macroeconomic Terrain: An Exploration of South Korea’s Economic Responsiveness to Cross-Border E-Commerce Production Technology Alterations in the Global Arena," Sustainability, MDPI, vol. 15(15), pages 1-20, July.
    4. Lee, Hangyu & Kim, Tae Bong, 2023. "The effectiveness of labor market indicators for conducting monetary policy: Evidence from the Korean economy," Economic Modelling, Elsevier, vol. 118(C).
    5. Jong-seok Oh, 2023. "Stabilizing the Macroeconomy with Labor Market Policies," Korean Economic Review, Korean Economic Association, vol. 39, pages 205-240.

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    More about this item

    Keywords

    Small open economy; Labor market; Macroeconomic shocks; Employment rate;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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