Labor Market Imbalances and Immigration Policies

Korea now faces rapid demographic decline due to ultra‑low fertility and accelerated aging. According to Statistics Korea, the population peaked at 51.75 million in 2024 and is projected to fall below 40 million by 2065. This demographic contraction is expected to intensify labor market imbalances. Several studies project widening labor shortages over the next 5–10 years. The Korea Employment Information Service (2025) suggests that the labor force will decline from 2030 and approximately 820,000 more workers will be needed to fill the labor demand by 2033. The Korea Labor Institute (2024, 2025) also estimated that a shortage of 2.98 million workers (2024–2028) will expand to 6.18 million (2025–2033). The degree of labor shortages varies by sectors and regions. ICT services, healthcare and welfare, logistics, hospitality, and agriculture are the sectors that are exposed to the highest risk of labor shortages. Some provinces are already experiencing difficulties in hiring qualified workers due to declining population. Apart from the demographic change, labor market imbalance is intensified by structural changes due to geopolitical and technological factors. Geopolitical factors—including strategic competition between the United States and China, the COVID-19 pandemic, and the Russia–Ukraine war—have heightened global supply chain instability, prompting major economies to strengthen domestic and regional competitiveness in key advanced industries such as artificial intelligence, biotechnology, semiconductors, and secondary batteries. This, combined with the decline in the economically active population across advanced economies, has exacerbated labor shortages in strategic high-tech sectors. In response, major countries are actively implementing policies to attract highly skilled foreign talent, which puts pressure on the supply of talent in Korea. Labor shortages increase production costs, reduce corporate profitability, heighten inflationary pressures, and undermine potential economic growth. Attracting more foreign labor in both skilled and unskilled occupations is increasingly being considered as a potential response to labor market imbalances, particularly labor shortages. However, several challenges remain to be addressed. These include intensifying competition among advanced economies to attract talent, conflict between free-market principles and existing (often rigid) visa regimes, and the wide-ranging economic, social, cultural, and political consequences of immigration. Resolving labor market imbalances is essential to sustaining long-term growth potential. Although foreign workers cannot fully offset aggregate labor shortages, they may be able to alleviate supply constraints in specific industries and skill categories. Promotion of labor mobility can be a plausible option as long as it is accompanied by policy measures to minimize associated side effects. Jang et al. (2025) conducted two empirical analyses to estimate the effect of immigration on the labor market imbalances. First, the study examines the impact of the free labor movement in the EU on labor market imbalances. The EU is an early adopter of immigration and a supranational entity operating one of the most advanced and proactive immigration regimes. In particular, examining the effects of the EU’s flexible and inclusive immigration policies can provide meaningful policy implications for Korea. Second, the report analyzes Korea’s Employment Permit System (EPS) to assess the extent to which domestic policy measures have contributed to alleviating labor shortages. Noting the expansion of the EPS—a low-skilled labor inflow mechanism—during the post–COVID-19 recovery phase, the study quantitatively evaluates how effectively this policy has mitigated labor shortages across regions. This brief will summarize the key methods and results of those analyses and derive policy implications from them.