Essays on Economics of South Korea

Ui Yoshida

Research output: ThesisDoctoral Thesis

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This thesis consists of four chapters. The first chapter utilises fixed effects estimation on a panel of all sixteen first-tier administrative divisions in South Korea1 to explore the effects of regional economic composition, and informal employment types, on tax revenue mobilization. Korea has a well-documented low tax burden (tax collected as a proportion of GDP) for an OECD country, yet no study has empirically examined the determinants of tax capacity in Korea. Another atypical feature of Korea is its high informal employment and self-employment rate, and contribution of personal and social services to GDP, the sector with the highest potential for informal activity. Despite these anomalies, no study thus far has quantified the impacts that these may have on the country’s tax capacity. This chapter contributes to the study of tax revenue determinants by not only looking at Korea in a single context, but by also using the aforementioned more precise measures informal activity on tax capacity, in addition to the typical measure usually used which is agricultural share of GDP. I use fixed-effects estimation on the panel of regions, combining regional and individual-level data, and find heterogeneous effects of regional sectoral economic activity, and employment types, on regional tax capacity. The statistical significance of the negative impact of informal employment on tax capacity is stronger than that of self-employment. Informal employment in the personal and social services sector has the largest negative effect on tax revenues.

The second chapter describes the background of a reform intended to increase the protection level of certain irregular workers in Korea (fixed-term and dispatched contracts), namely the 2007 Act on the Protection of Irregular Workers. This reform is the basis for the third and fourth chapters. Irregular workers refer to workers who cannot expect stable employment with employers and experience poorer working conditions in terms of wages and employment protection coverage, than their regular counterparts. Amidst the growing polarization of the Korean labour market following the 1997 Asian Financial Crisis, the Korean government implemented this reform in 2007 in an attempt to address the prevalence of irregular work agreements through converting irregular contracts into regular contracts. Before 2007, there were no restrictions on the use of irregular contracts, meaning workers could be employed on these contracts indefinitely. However, under the reform, an irregular contract should be either converted into a regular contract or terminated within two years of being signed. The reform also prohibits differential treatment against irregular workers in terms of working conditions, due to their employment status, in comparison to regular workers carrying out similar or the same work.

The third chapter examines the impact of the 2007 irregular employment protection legislation (EPL) on irregular and regular employment in Korea. I use a panel of individuals and a difference-in-difference framework to identify the effect of the reform on the probability of transitioning from irregular employment to regular employment, the probability of remaining irregular, or the probability of becoming unemployed. I find the reform increases the probability of transitioning from irregular to regular employment, and this is mainly driven by conversion into regular employment within the same job. They are also less likely to move into a new irregular job. I also find differences between skill-level (high vs low) and type of workplace of respondent (private vs public employer). In addition to transitions, I examine the wage growth for workers who switch from irregular to regular employment, and find that private sector workers experience an initial wage increase, but public sector workers experience a decrease. Regularization of jobs mostly occurs in the industrial sector, but of the workers who do move into regular employment, retail workers experience the biggest improvement in wage.

In the fourth chapter, I identify how the 2007 irregular EPL affects the workforce composition and financial performance of Korean firms. Using a panel of firms, I again apply a difference-in-difference framework and exploit the fact that the impact impact of the reform is assumedly larger for firms that initially used these protected irregular workers intensively. The results show that firms lower their total employment levels and adjust the composition of the workforce by reducing the use of protected irregular contracts, and increasing the use of unprotected irregular contracts and regular contracts. In unionized firms, the shift towards these less financially burdensome workers is larger but towards regular workers is smaller. I also explore how the results differ between economic sectors and type of workplace. In addition, I examine the effect of the reform on the wages and employment protection coverage of irregular workers and find differences between irregular workers that have a direct employment relationship with the firm and those who do not. There is also no evidence that the reform negatively affected firm profitability.
Original languageEnglish
Awarding Institution
  • Royal Holloway, University of London
  • Trapeznikova, Ija, Supervisor
  • Rud, Juan Pablo, Supervisor
Thesis sponsors
Award date1 Dec 2021
Publication statusUnpublished - 2021

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