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TEMPORARY EMPLOYMENT AND EARNINGS INEQUALITY IN SOUTH KOREA

Abstract
My dissertation explores the effect of growth of temporary employment on earnings inequality. In the first essay, I find that during a time when there was a nearly 10 percentage points increase in the share of temporary workers in the Korean labor market (but prior to the global recession), the rise in temporary employment can account for a substantial part (20-30 percent) of the growth in overall wage inequality. These results appear to be robust to alternative ways of performing the decomposition, including using the recently developed recentered influence function approach of Firpo, Fortin and Lemieux. In addition, the rise of temporary employment mainly affects the lower-tail of the distribution and fattens the very bottom; female temporary workers in sales and service or doing elementary occupations are the people who suffered from the change the most. In the second essay, joint with Peter Skott, we use an extension of a standard efficiency wage model to explain the wage gap between temporary and permanent workers. Temporary workers have a chance to become permanent; this possibility -- combined with the existence of an employment rent for permanent workers -- gives short-term workers an incentive to work hard. Thus, a high wage to permanent workers serves a dual purpose: it affects the effort of both permanent and temporary workers. Applying the model to the Korean experience, we discuss how institutional changes have contributed to increasing earnings inequality. My third essay explores wage effects of the use of temporary employment upon permanent workers' wage. I propose an idea; as temporary employment grows, the fear of job loss is getting higher and the probability of getting a similar job is getting lower for permanent workers. This lower job insecurity tends to lower their bargaining power, and thus their pay level. Using a firm-level panel, I find that wages for permanent workers decrease as the share of temporary workers increases. The analysis also shows that wages for permanent workers in non-union and small/medium-sized firms have greater negative impacts; this helps explain the evolution of inequality in Korea.
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openaccess
dissertation
Date
2014
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