An Analysis of International Labor Mobility: The Case of Korea

The employment of foreign workers is getting more attention among policymakers and labor market experts, as the Korean population is aging in an unprecedentedly rapid way. In this paper, we analyze the impacts of foreign labor force influx on the domestic labor market theoretically and overview the foreign worker employment system in Korea. Theories show that foreign workers may lead to reduction of wages as well as some substitution of native workers with foreign workers, depending on industry, skill level and firm type. However, job market segmentation and induced new investment may decrease a negative impact on the domestic labor market. Combining the theory, the institutional facts, and current states of foreign workers in Korea, we draw some policy implications. First, H-2 visa holders could neutralize the effort on the industrial quotas. And also, this may make the government lose control over the foreign workers’ labor supply. Second, statistics on the labor shortage may need to be improved, since domestic employers have an incentive to overemphasize their labor shortage. Third, the current quota system may need to incorporate a long-run forecast by encompassing the long-run industrial trend and change in Korean population. Fourth, the principle of short-term migration is losing its ground as the government allows foreign workers to reside for longer periods. The government may need to decide whether to stick to the principle or not. Fifth, the government needs a more systematic way to introduce high-skilled, professional foreign workers, as the employment permit system does for low-skilled foreign workers. Finally, the government needs to clarify the policy targets through a more sophisticated classification of foreign workers and has to decide whether it would encompass those foreign workers between high-skilled professionals and low-skilled workers.