Current Issue

Seoul Journal of Economics - Vol. 35 , No. 2

[ Article ]
Seoul Journal of Economics - Vol. 35, No. 2, pp. 131-158
Abbreviation: SJE
ISSN: 1225-0279 (Print)
Print publication date 31 May 2022
Received 30 Nov 2021 Revised 15 Apr 2022 Accepted 19 Apr 2022
DOI: https://doi.org/10.22904/sje.2022.35.2.002

Effect of Irregular Worker Protection Law on Welfare Benefits Payment
MyoungHwan Kim ; GiSeung Kim
MyoungHwan Kim, First Author, Policy Analyst, Economic Social & Labor Council, S-tower F8, 82 Saemunan-ro, Jongno-gu, Seoul 03185, Rep. of KOREA, Tel: +82-2-721-7153 (hwaniyam118@gmail.com)
GiSeung Kim, Corresponding Author, Professor, Department of Economics, Pusan National University, 63 Busandaehak-ro 2, Geumjeong-gu, Busan 46241, Rep. of KOREA, Tel: +82-51-510-2564 (gsk@pusan.ac.kr)

JEL Classification: J08, J32, J42


Abstract

Since the 1997 Asian financial crisis, the polarization of wages and welfare benefits by the type of employment contract in the Korean labor market has intensified. The Korean government enacted the Irregular Worker Protection Law (hereafter denoted as IWPL), which focuses on non-discrimination in 2007. From the characteristics of personnel management in Korea, a hypothetical mechanism can be proposed that companies ensure long-term and stable employment in the internal labor market by suppressing the expenditure of welfare benefits, a type of quasi-fixed labor cost, in response to IWPL. To test this hypothesis, we construct the treatment group with similar characteristics to the comparison group through propensity score matching (hereafter denoted as PSM). Then, the difference in difference (hereafter denoted as DID) is performed on two matched groups. As a result of the analysis, IWPL is confirmed to have a negative effect on welfare benefits payment, and this reduction effect gradually increases with the passage of time. Finding shows the possibility that companies have minimized the negative employment effect of IWPL and protected the internal labor market by adopting personnel management that reduces quasi-fixed labor costs such as welfare benefits.


Keywords: Welfare benefits, Quasi-fixed labor costs, Self-selection bias, Matched DID

Acknowledgments

We thank the anonymous referees for their constructive comments and suggestions. This paper is the revised version of Ch.5 in the first author’s doctoral dissertation.


References
1. Angrist, J. and J. Pischke. “Mostly Harmless Econometrics.” Princeton University Press, 2009.
2. Ashenfelter, O. and D. Card. “Using the Longitudinal Structure of Earnings to Estimate the Effect of Training Programs.” The Review of Economics and Statistics 67 (1985): 648-660.
3. Athey, S. and G. Imbens. “Identification and Inference in Nonlinear Difference-in-Difference models.” Econometrica 74 (2006): 431-497.
4. Baek, J. and W. Park. “Firms’ Adjustments to Employment Protection Legislation: Evidence from South Korea.” ILR Review 71 (No. 3 2018): 733-759.
5. Barker, K and K. Christensen. “Contingent Work: American Employment Relations in Transition.” Cornell University Press, 1998.
6. Baron, J., A. Davis-Blake and W. Bielby. “The Structure of Opportunity: How Promotional Ladders Vary within and among Organizations.” Administrative Science Quarterly 31 (1986): 248-273.
7. Belot, M., J. Boone and J. van Ours. “Welfare Effects of Employment□ Protection.” CEPR Discussion Paper 3396, 2002.
8. Bentolila, S. and G. Bertola. “Firing Costs and Labor Demand: How Bad is Eurosclerosis?” Review of Economic Studies 57 (No. 3 1990): 53-100.
9. Busk, H., C. Dauth and E. Jahn. “Do Changes in Regulation Affect Temporary Agency Workers’ Job Satisfaction?” Industrial Relation: A Journal of Economy and Society 56 (No. 3 2017): 514-544.
10. Caliendo, M. and S. Kopeinig. “Some Practical Guidance for the Implementation of Propensity Score Matching.” Journal of Economic Surveys 22 (2008): 31-72.
11. Dehejia, R. and S. Wahba. “Propensity Score-Matching Methods For Nonexperimental Causal Studies.” The Review of Economics and Statistics 84 (No. 1 2002): 151-161.
12. Choi, C. “Enforcement of Irregular worker Protection Law and Job Satisfaction.” Korea Labor Institute, 2008 (in Korean).
13. Grubb, D., J. Lee and P. Tergeist. “Addressing Labor Market Duality in Korea.” OECD Social, Development and Migration Working Papers 61, 2007.
14. Hopenhayn, H. and R. Rogerson. “Job Turnover and Policy Evaluation: A General Equilibrium Analysis.” Journal of Political Economy 101 (1993): 915-938.
15. Hosono, K. et al. “The Impact of Demand Shock on the Employment of Temporary Agency Workers: Evidence from Japan during the Global Financial Crisis.” Seoul Journal of Economics 28 (No. 3 2015): 265-283.
16. Kim, M. and G. Kim. “The Employment Effects of Non-regular Worker Protecting Acts in Small Business.” Korean Journal of Industrial Relations 24 (No. 3 2014): 23-43 (in Korean).
17. Kim, Y. “Size and Reality of Irregular Worker.” Korea Labor & Society Institute, 2017 (in Korean).
18. Leuven, E. and B. Sianesi. “PSMATCH2: Stata Module to Perform Full Mahalanobis and Propensity Score Matching, Common Support Graphing, and Covariate Imbalance Testing.” Statistical Software Components, 2003.
19. Nam, J. and K. Park. “The Effects of the Acts Protecting Nonstandard Workers on Employment in Korea.” Quarterly Journal of Labor Policy 10 (No. 4 2010): 65-99 (in Korean).
20. Oi, W. “Labor As A Quasi-Fixed Factor.” Journal of Political Economy 70 (No. 6 1962): 538-555.
21. Polivka, A. and T. Nardone. “On the Definition of Contingent Work.” Monthly Labor Review 112 (1989): 9-16.
22. Rosenbaum, P. and D. Rubin. “The Central Role of the Propensity Score in Observational Studies for Causal Effects.” Biometrika 70 (1983): 41-55.
23. Wachter, M. and R. Wright. “The Economics of Internal Labor Markets.” Industrial Relations 29 (No. 2 1990): 240-262.
24. Yoo, K. “Irregular Worker Issues and Policy Direction.” Korea Development Institute, 2010 (in Korean).
25. Yoo, K. and C. Kang. “Effects of the 2007 Act on the Protection of Fixed-term and Part-time Employees on Employment Levels.” Korean Journal of Labor Economics 36(No. 2 2013): 67-94 (in Korean).