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Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 38, No. 3, pp.239-281
ISSN: 1225-0279 (Print)
Print publication date 30 Aug 2025
Received 25 Jun 2025 Revised 18 Aug 2025 Accepted 19 Aug 2025
DOI: https://doi.org/10.22904/sje.2025.38.3.001

Dynamic Interactions between Regional Unemployment, Self-employment, and Minimum Wage

David Kim ; Woo-Yung Kim
David Kim, School of Economics, The University of Sydney, Australia kim.david@sydney.edu.au
Woo-Yung Kim (Corresponding author), Department of Economics, Kongju National University, Republic of Korea kwy@kongju.ac.kr

JEL Classification: E21, E22, E25, J30, R11

Abstract

This study examines the relationship among unemployment, self-employment, and minimum wage changes in Korean regions from 2008 to 2023 using fixed effects, dynamic panel, and panel vector autoregressive (PVAR) models. We find that relatively high minimum wages reduce self-employment by increasing opportunity costs while also raising unemployment. Effects vary by region and type of self-employment—own-account workers are more vulnerable than employers, and metropolitan cities experience stronger labor market disruptions than provinces, where informal sectors absorb shocks. Although minimum wage increases initially discourage self-employment, our PVAR analysis indicates a gradual recovery of self-employment after three years, suggesting potential long-term entrepreneurial activity. Robustness checks using alternative measures of the minimum wage confirm the consistency of our findings. These findings highlight the need for minimum wage policies that consider regional labor market differences and support small businesses to mitigate adverse effects.

Keywords:

self-employment, unemployment, minimum wage, panel VAR, region

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