Do Unions Inhibit Labor Flexibility? Lessons from Korea

Do Unions Inhibit Labor Flexibility? Lessons from Korea
Lee, Ju-HoMoh, Young-Kyu
Labor Flexibility; Labor Adjustment; Labor Unions
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Series/Report no.
KDI Working Paper Series;01-05
This paper examines whether and to what extent unions inhibit labor flexibility in the Korean manufacturing. Korea provides an ideal setting to study the effects of unions on labor flexibility with the abrupt incidence of unleashing active unionism in 1987. We provide evidence that the short-run employment adjustment (one to six months) and hours adjustment (one-month) of manufacturing regular workers decrease in the post- 1987 period compared to the pre-1987 period. However, negative union effects on employment adjustment are limited to male, productio n, and regular workers, and Korean employers respond through increased employment of daily workers (workers with employment contract shorter than one month) and aged workers (55 or older) and also through the higher flexibility of female workers. Furthermore, significant part of the decrease in employment flexibility (for instance, 35 percent of the decrease in 1-month output elasticity of employment) is attributed to the labor market changes toward tighter labor market with the reduced young workers that make separation more procyclical.
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