KDI - Korea Development Institute - RESEARCH - Research Areas

Summary

Policy Study KOR A Study on the Economic Impact of Foreign Worker Inflows and Determinants of Migration Decisions

Korea’s declining potential growth due to demographic change has elevated immigration policy as a central economic strategy, yet effective design is hindered by limited evidence on labor-market impacts and growing reliance on non-employment residence statuses that still permit work.

Traditional employment-visa-based forecasting no longer captures the true scale or composition of foreign labor.

This study addresses this gap by providing rigorous evidence on how foreign worker inflows affect labor-market outcomes and by identifying key determinants of migrants’ decisions to move to Korea.

Using a causal framework with shift-share instruments for 229 municipalities (2016-2023), the study shows that an increase in employment-visa foreign inflows raises natives’ days worked slightly but substantially reduces foreign workers’ days worked and incomes.

Income effects on natives are, on average, statistically insignificant, while foreign workers’ incomes decline markedly, indicating strong substitution and competition among foreign workers and more pronounced adverse effects for foreigners than for natives.

The effects vary by period and visa type.

In the post-COVID-19 period, inflows under employment visas reduced native incomes, and the adverse income effects become more pronounced when non-employment visa holders (e.g., overseas Koreans, international students, and permanent residents) are included.

These findings underscore that mismeasurement of labor inflows ― particularly the exclusion of non-employment statuses ― can bias impact estimates and lead to misguided policy conclusions.

Beyond labor outcomes, the analysis documents migration determinants ― income, finance, and migration costs ― showing a consistent native income premium, limited financial inclusion for foreigners reliant on high-interest loans, and high migration costs relative to expected income, especially under short-term stay regimes.

Taken together, the findings indicate that immigration policy in Korea should move away from a narrow, employment-visa-centered approach and toward an integrated framework that explicitly accounts for all labor-supplying residence statuses and their heterogeneous effects over time and space.

These patterns underscore the necessity of evidence-based visa quota setting, careful monitoring of regional and sectoral impacts, and policy instruments that prevent unintended harm to vulnerable groups.

By grounding immigration policy in precise measurement and causal analysis rather than aggregate labor-shortage narratives, Korea can better align foreign labor utilization with sustainable growth and labor-market stability.

Summary

Policy Study KOR Intergenerational Mobilty in Korea: Insights from Educational Mobilty

This study examines intergenerational educational mobility in South Korea to provide a comprehensive analysis of social mobility and its underlying factors. By assessing both absolute and relative educational mobility, the study aims to highlight disparities in access to higher education and the influence of parental background. The findings indicate that while South Korea exhibits high intergenerational educational mobility, the trend of upward mobility has weakened in recent birth cohorts, with parental education and income playing a growing role in shaping children’s educational outcomes. In particular, the analysis reveals that income disparities increasingly translate into differences in access to top-tier universities, reinforcing intergenerational inequality. Moreover, structural changes, such as rising university enrollment rates, necessitate a nuanced approach to measuring educational mobility. To enhance equal opportunities, policy efforts should focus on expanding educational access for disadvantaged groups and preventing income inequality from perpetuating educational disparities. Reforming university admissions to incorporate diverse selection criteria beyond standardized test scores can help ensure that academic achievement is determined by individual ability and effort rather than socioeconomic background.

Summary

Research Monograph KOR The Effects of Serious Accidents Punishment Act on Labor Market Outcomes

This study examines the effects of the Serious Accidents Punishment Act (SAPA) on labor market outcomes to derive policy implications. SAPA was enacted in January 2021 and implemented in January 2022.

Chapter 2 summarizes the institutional structure and introduces key research questions. Specifically, this chapter reviews the legislative background, the structure of the law, early judicial trends, and existing literature on SAPA. Based on this review, I provide theoretical predictions regarding the effects of SAPA using a simple model where firms choose their level of safety investment and labor demand. The model predicts that while SAPA is likely to reduce accidents by increasing safety investment, it may simultaneously lead to a reduction in labor demand.

Chapter 3 analyzes data from an original firm-level survey to examine current situation of the Safety and Health Management Systems. I find that firms increased their safety investment following the implementation of SAPA. However, despite the quantitative expansion of safety investment, I find that the qualitative improvement of the Safety and Health Management Systems remains limited.

Chapters 4 through 6 present causal analyses of SAPA’s effects. In Chapter 4, I study the effects on the labor market for safety experts, a key input for safety investment. By applying Synthetic Difference-in-Differences (SDID) to observations from the Regional Employment Survey, I find that SAPA increased the employment of safety experts, with the effect growing from 2022 to 2024. However, the effect on wages was pronounced only in the short run; while SAPA increased wages in the second half of 2022, the effect became smaller and statistically insignificant by the second half of 2024, implying a highly elastic supply of safety experts.

Chapter 5 examines effects on workplace accident fatalities, the primary policy objective of SAPA. Using a Difference-in-Differences (DID) framework that exploits industry-level variation in exposure to SAPA, I find that the Act reduced three "traditional" types of workplace accidents: falls, crushes, and collisions. However, there is no evidence of significant effects on other accident types.

Chapter 6 investigates the effects of SAPA on labor demand for high-risk occupations. I combine information on occupation-level risk exposure and labor market outcomes using an empirical strategy in Continuous Treatment Difference-in-Differences framework. The results indicate that following the implementation of SAPA, employment levels in higher-risk occupations decreased relative to those with lower risk exposure.

Chapter 7 concludes the study by synthesizing the empirical findings and deriving policy implications.

Summary

KDI FOCUS Eldercare Workforce: Projections and Policy Implications

Operating beyond the super-aged threshold, Korea faces deepening shortages in its eldercare workforce as the sector struggles to attract workers. While better job quality is imperative to expand this workforce and maintain the quality of life for older adults, incentives for domestic workers alone will not close the gap. Visa policy needs to change to bring in foreign care workers, and care robot technologies should be actively deployed to raise labor productivity in the sector.

- Demand for formal eldercare services is expected to rise sharply, with workforce shortages deepening in step.

- Demand for LTC services is projected to increase by more than 2.4 times between 2023 and 2043.

- Health improvements offset demand only modestly. The growing 85+ population will drive faster growth in high-intensity care (Grades 13).

- The supply of LTC workers is projected to peak at 806,000 in 2034 before declining.

- The share of care workers aged 60 and over is expected to rise from 63.1% in 2023 to 72.6% in 2043, reflecting an increasingly aged workforce.

- Holding the 2023 caseload per care worker constant would require an additional 990,000 workers by 2043.

- Differences in the pace of aging across regions will widen disparities in the number of beneficiaries per care worker.

- Foreign care workers comprised just 0.9% of the total workforce in 2023, a marginal presence in the sector.

- With 56.6% of foreign care workers aged 60 or over and 77% concentrated in the SMA, their capacity to mitigate workforce aging and regional supply disparities remains highly constrained.

- Visa policy for foreign care workers should shift to occupation-specific visas with managed aggregate inflows, guided by the extent to which better job quality can expand the domestic workforce.

- Applying current EPS service-sector quotas to care facilities would permit up to 63,000 foreign workers.

- The E-7 care worker visa pilot should be expanded in scale, alongside efforts to secure sufficient enrollment for the associated training program.

- Attracting domestic workers and retaining recruited foreign careworkers both require better job quality.

- Targeted incentives are needed to encourage employment in underserved regions and ease supply-demand imbalances.

- Care robot uptake in Korea remains low, with just 6.4% of surveyed facilities deploying them.

- The main reason for deploying care robots is to ease the physical burden on care workers; adopters report workload reductions of more than half in some cases.

- Cost is a key barrier to adoption: 51.8% of care facilities would deploy care robots if cost subsidies were provided.

- Care robot policy should expand beyond its developer-centered focus to include support for care facilities, promoting wider adoption in frontline care settings.

Summary

Research Monograph KOR Who Cares for Us?: Policies on Eldercare Workers

South Korea reached the super-aged mark in December 2024, with over 20% of its population aged 65 and older. Eldercare jobs, labor-intensive and emotionally demanding yet accessible to low-skilled workers at low wages, are globally undesirable, leading to labor shortages in advanced economies. As baby boomers (born 1955-1963) enter the late elderly (75 and older) after 2030, demand for eldercare services is projected to surge, worsening supply-demand imbalances.

This study examines the current state and limitations of Korea’s eldercare workforce to propose policy improvements. It estimates eldercare labor supply and demand to forecast the scale of labor shortage and discusses strategies for workforce expansion. Additionally, an empirical analysis assesses how quantitative and qualitative workforce expansion impacts the quality of life for residents in long-term care facilities, providing policy insights.

Chapter 2 forecasts demand for eldercare services and estimates the eldercare labor supply to assess the scale of labor shortage and analyze supply-demand imbalances at the national and metropolitan/provincial levels. The findings indicate that the rapid rise in the super-aged population will sharply increase demand, outpacing the growth of care worker supply and deepening supply-demand imbalances. Regional variations in aging and available workforce are expected to widen the regional supply disparities, suggesting the need for proactive and region-specific workforce expansion policies. This chapter also estimates demand for services that reflect improvements in elderly health in the past decade, highlighting that workforce expansion alone is insufficient to resolve the supply-demand gap amid sustained demand growth. Managing demand for long-term care services through elderly health promotion and functional improvements is essential.

Chapter 3 investigates how expanding the eldercare workforce in long-term facilities affects health outcomes for care recipients. Using health insurance claims and long-term care insurance data, it examines the impact of the 2018 minimum wage increase and the 2022 staffing requirement changes on facility employment and recipients’ medical service utilization. The results indicate that workforce expansion is associated with reduced medical service use, leading to positive health outcomes, suggesting investment in care worker expansion can be a cost-effective policy measure.

Chapter 4 empirically analyzes the impact of enhancing nursing functions in eldercare workers on care recipients and discusses the need for improving their expertise. This chapter examines how changes in nursing staff skill composition following the 2018 minimum wage increase and the specialized nursing care unit pilot program launched in 2019 affected recipients' medical service utilization. The analysis shows that strengthening medical functions in long-term care facilities significantly reduces residents' use of high-cost inpatient services, leading to lower overall healthcare expenditures. While the increased costs of long-term care services partially offset these savings, the results suggest that the specialized nursing care unit program aligns with policy goals of optimizing healthcare utilization among facility residents.

Chapter 5 identifies the characteristics of foreign care workers using administrative data, albeit to a limited extent, aiming to enhance understanding of migrant labor in the eldercare sector. With restricted foreign worker employment in eldercare roles in Korea, this chapter assesses the potential impacts of their integration through existing literature. Furthermore, it reviews specific policy responses from countries utilizing migrant worker policies to mitigate eldercare labor shortages and discusses implications for Korea's eldercare sector.

Chapter 6 proposes future policy directions for eldercare workforce expansion based on the findings from the preceding chapters. First, quantitative workforce expansion enhances job quality, reduces workload through care technology, and utilizes migrant labor. Second, elevating the professional competence of the eldercare workforce involves strengthening nursing functions in long-term care facilities, clarifying the scope of nursing care that can be provided within such facilities, and enhancing education and training in geriatric medicine for facility staff. Third, managing care demand through health promotion entails implementing mental health and chronic disease management strategies to delay the need for eldercare. By addressing these areas, this study aims to contribute to the development of sustainable policies that ensure adequate workforce supply while improving the quality of eldercare services in Korea.

Summary

Policy Study KOR Income Support in Response to Labor Market Shocks: Korea‘s Basic Livelihood Security System

This study examines how labor market conditions and labor policy changes affect benefit receipt under Korea’s National Basic Livelihood Security (NBLS) system. Given the substantial coverage gaps in employment insurance, NBLS serves as the last-resort safety net for low-income individuals who are able to work. Assessing its responsiveness to economic shocks and policy changes is essential for evaluating the effectiveness and limitations of the current income support system.

First, the study analyzes the responsiveness of NBLS benefit receipt and expenditures to key labor market indicators, such as the unemployment rate and the employment rate. The results show that, overall, NBLS has not exhibited meaningful counter-cyclical responsiveness to labor market fluctuations. Although a modest increase in benefit responsiveness to the unemployment rate is observed following the 2015 reform, responsiveness remains broadly limited ― even during the COVID-19 period. However, in contrast to the weak correlation with the aggregate employment rate, declines in the employment rate of middle-aged unpaid family workers show a clear association with increases in NBLS receipt. These findings suggest that NBLS has limited responsiveness to labor market fluctuations among the working population, though it appears responsive for specific vulnerable groups such as unpaid family workers.

Second, the study examines the effects of minimum wage increases ― a key labor policy targeting vulnerable workers ― on NBLS benefit receipt. The analysis shows that sharp minimum wage hikes increased both overall NBLS receipt and livelihood benefit receipt, particularly among middle-aged individuals. Monthly analyses that control for other NBLS reform effects also confirm that minimum wage increases raised benefit receipt among the working-age population. Moreover, this increase was driven primarily by new entrants to NBLS rather than by a slowdown in exits.

These findings align with the earlier results showing that NBLS receipt is particularly responsive to labor market shocks among certain vulnerable groups, such as middle-aged unpaid family workers. Previous studies have shown that minimum wage increases reduce employment rates among vulnerable groups in the labor market, including the self-employed and unpaid family workers. Taken together, the analysis suggests that employment shocks experienced by unpaid family workers may constitute a key channel through which NBLS benefit uptake rises ― particularly among the middle-aged population.

This paper emphasizes the importance of establishing and strengthening an income support system that is responsive to labor market dynamics, especially in light of anticipated structural changes and labor policy reforms. Moreover, because labor and welfare policies often target overlapping populations and interact in practice, it is essential to carefully consider these interconnections in the design and implementation of related policies.

Summary

KDI FOCUS Declining Cognitive Skills among Korean Workers: Drivers and Improvement Measures

Strengthening workforce competencies and labor productivity has become increasingly important amid rapid advances in automation and industrial transformation. However, international comparative findings show that the cognitive skills of Korean workers decline steeply with age, raising concerns about labor productivity. While multiple factors contribute to this decline, the primary driver appears to be a wage structure that provides insufficient incentives for skills development. To promote labor productivity growth, wage systems based on skills and performance need to be expanded, alongside the provision of broader opportunities for upskilling and reskilling.

- Adapting to advances in AI and evolving job tasks requires raising labor productivity through broad-based improvements in workers’ cognitive skills.

- The cognitive skills of Korean workers have not only declined over the past decade but also exhibit an unusually rapid depreciation with age, raising concerns regarding both labor productivity and the effective utilization of older workers.

- Skill depreciation among Korean workers is marked by (1) an early onset in young adulthood and (2) an exceptionally rapid decline with age.

- Factors contributing to the rapid age-related decline in cognitive skills appear to include limited opportunities for skill development in adulthood: long and rigid working hours, ineffective learning and training programs, and workplace environments that prevent workers from developing skills.

- The absence of wage systems that incentivize voluntary skill development is suggested as a key factor behind Korea’s rapid skill decline.

- For Korean workers, the expected wage return to cognitive skills is roughly half the level observed in OECD peers such as Germany, Japan, and the United States, leaving weak incentives for voluntary upskilling.

- Korea’s wage structure (1) places substantially greater weight on tenure than on competencies and (2) exhibits large wage differentials by firm size.

- This wage structure weakens incentives for post-entry skill development while intensifying inefficient credential competition for early-career entry into large firms.

- Broader adoption of skill- and job-based pay systems is needed to strengthen incentives for workers to develop their skills.

- Workers should be given meaningful opportunities to build their skills through greater autonomy over working hours, more effective learning and training programs, and workplace environments that enable full use of their competencies.

Summary

KDI FOCUS Drivers of the Growth of Marginal Part-Time Work and Policy Recommendations

Marginal part-time work has risen rapidly in South Korea’s labor market, driven by a policy structure in which labor costs increase sharply at 15 hours per week. Policy adjustments are needed to moderate the excessive cost differential at a specific working-hour threshold.

- Among wage workers, the share of marginal part-time workers―defined as those working fewer than 60 hours per month―more than doubled, rising from 3.7% in 2012 to 8.5% in 2024.

- Social insurance coverage remains low for marginal part-time workers, with few signs of improvement.

- The rapid expansion of marginal part-time work means that jobs outside the worker protection framework are increasing, calling for policy attention.

- Because many worker protection schemes apply only to workers with contractual hours of 60 or more per month, marginal part-time work falls within a blind spot of the worker protection framework.

- The cost discontinuity at 60 hours per month creates incentives for employers to hire marginal part-time workers.

- Since the 2010s, compliance with worker protection schemes for workers employed at least 60 hours per month has improved.

- Improved compliance with worker protection schemes has stimulated the expansion of marginal part-time work.

- Improved compliance with worker protection schemes is empirically correlated with the expansion of marginal part-time work and explains a substantial share of that increase.

- Improved compliance with worker protection schemes may reflect greater public awareness and understanding of these schemes.

- The labor market structure with a sharp cost discontinuity at 60 hours per month warrants adjustments.

- While revisiting the weekly holiday allowance is necessary to mitigate the cost differential that encourages both marginal part-time work and long working hours, adjustments should be framed as a longer-term objective and pursued
cautiously.

- The following principles should guide the formulation of a policy mix: set eligibility criteria in light of the overall cost structure; proceed gradually and combine policy measures to mitigate adverse effects; avoid placing disproportionate adjustment costs on specific groups; and conduct sufficient social dialogue and institutional review.

Summary

Research Monograph KOR Drivers of Part-time Work Growth and Policy Recommendations

This study examines the causes of part-time work growth in South Korea over the past decade and offers policy insights. Chapter 2 analyzes 2012-2022 data from the Additional Survey by Type of Employment of Economically Active Population Survey and the Survey of Labor Conditions by Employment Type, identifying when and which types of part-time workers increased. The growth, notable during 2016-2019, was primarily driven by older workers, part-time workers with extremely short hours (under 15 hours weekly), and service sector employees. It proposes three hypotheses: (1) workforce composition shifts, including aging and service sector expansion; (2) the adoption of a nonlinear labor cost schedule with a significant discontinuity at 15 hours per week; and (3) the minimum wage increases in 2018-2019.

Chapter 3 employs DiNardo et al.’s (1996) decomposition methodology to assess the contribution of workforce composition changes to part-time work growth. Findings reveal limited explanatory power, as within-group part-time trends dominate and declining youth employment offsets rising elderly employment, suggesting institutional and policy factors as primary drivers.

Chapter 4 analyzes the growth of extremely short-hour work driven by institutional factors affecting labor demand, focusing on a nonlinear labor cost schedule with a significant discontinuity at 15 hours per week (or 60 hours per month). Enhanced compliance with this institutional structure in the 2010s, measured by industry-level variations in social insurance enrollment rates for workers with 60-99 monthly hours, strongly correlates with the growth of part-time workers with very short hours, particularly among new hires.

Chapter 5 conducts an event-study analysis with a continuous treatment variable of the effects of the 2018-2019 minimum wage increases on working hours distribution, finding substantial wage increases for low-wage workers but no clear causal link to the growth of part-time workers with very short hours, which follows the pre-2017 trend. Evidence suggests that this growth likely stems from sustained improvement in compliance with the nonlinear labor cost schedule analyzed in Chapter 4 rather than minimum wage increases.

Chapter 6 concludes with a summary of empirical findings and offers policy recommendations to reduce discontinuities in the nonlinear labor cost schedule at 15 hours per week. Focusing on the Weekly Holiday Allowance, it outlines institutional reform directions and addresses implementation challenges.

Summary

Policy Study KOR The Impact of Demographic Changes on Productivity

Demographic transitions in South Korea are projected to slow its potential economic growth through declining labor input and lowering total factor productivity (TFP). However, the TFP channel has been relatively underexplored compared to the labor input channel due to data limitations. To address this gap, this study constructs a comprehensive firm-level dataset by combining KISDATA from the NICE Information Service with income tax records from the National Tax Service. The resulting dataset includes information on both firm-level productivity and the age composition of employees, enabling a quantitative analysis of how workforce aging affects TFP.

The analysis reveals five key findings. (1) An inverse U-shaped relationship exists between employee age composition and TFP, peaking at ages 35-49. (2) Among employees aged 50 and older, TFP significantly decreases as their share rises. Relative to the 35-39 reference group, an increasing share of 40-49 year-olds has no statistically significant effect. However, a 1%p increase in the 50-54 share decreases TFP by 0.2%, and a 1%p rise in those aged 55 and above shows a larger 0.5% decline. (3) The negative impact of workforce aging is more pronounced in firms in the Seoul metropolitan area, firms with 50-299 employees, manufacturing and construction sectors, and firms operating over 30 years. (4) Firms with low average education and wage levels, high labor intensity, or low value-added per employee exhibit greater TFP declines due to workforce aging. (5) While strong seniority-based wage systems are associated with an earlier peak in the inverse U-curve, firms with weak seniority wages experience larger TFP declines due to aging.

The findings suggest that overlooking the TFP channel may lead to underestimating the demographic effects on economic growth. Mid-to-long-term population projections indicate that population aging will reduce TFP by an annual average of 0.2% between 2031 and 2041. The persistent downward pressure on productivity should be incorporated into assumptions about the future TFP trajectory.

This study identifies firms most vulnerable to population aging through heterogeneity analyses, offering targeted policy recommendations for South Korea's labor supply strategies. As industries become more labor-intensive, low-skill, and low-wage, their productivity declines are expected to be even steeper from workforce aging. Expanding younger foreign worker inflows in the short term can bolster labor supply, while long-term strategies should enhance productivity in these industries to attract domestic youth. Additionally, as seniority-based wage systems exacerbate the productivity impact of aging, reducing reliance on seniority and expanding task- and performance-based compensation systems is advisable for improving TFP.

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