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Low-wage trap risks and policy options for Korea

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Frame of Image gly limited. Controlling the heterogeneity as well as the endogeneity of initial conditions, we find statistically significant and positive state dependence, a finding highlighted by the need for universal measures to curb low-wage work. As such, Korea has both introduced and expanded a series of policies designed to assist low-paid workers in either facilitating their pay increases or preventing them from falling into poverty. This paper addresses what makes these policies have little effectiveness in curbing low wages, with a special focus on collective bargaining, minimum wages, unemployment benefits, and in-work benefits, in line with the list of policy options provided in ILO’s Global Wage Report 2010. Our panel regressions show that collective bargaining did reduce low wages in the 1990s but this positive effect disappeared in the 2000s. As collective bargaining weakens, the importance of the statutory minimum wage has increased for low wage earners. Nonetheless, levels have remained too low to make any significant impact. What is of more concern than the relatively low level of minimum wage is that non-compliance is rarely caught and sanctioned, and this has led to the low rate of compliance. Furthermore, the majority of low wage earners are excluded from social benefits, and the replacement ratio of unemployment benefits is low, effectively exerting downward pressure on wages for low wage earners by keeping reservation wages down. In the case of Work Promotion Tax, a


Full Text
Title Low-wage trap risks and policy options for Korea
Similar Titles
Material Type Reports
Author(English)

Lee, Byung-Hee; Hwang, Deok Soon

Publisher

[Seoul]:KLI

Date 2012-01
Series Title; No e-Labor News / 117
Pages 25
Subject Country South Korea(Asia and Pacific)
Language English
File Type Documents
Original Format pdf
Subject Social Development < Employment
Holding KLI; KDI School

User Note

This is a paper presented at the international conference “Welfare States’ Response to Labor Market Dualism and
The Working Poor”, organized by the Korea Labor Institute and NRF-SSK of Center for Peace and Public Integrity at Hanshin University , in Seoul on December 16, 2012. This paper was sponsored by an ILO research project: “Low-paid Workers in Developing Countries: Who are they? What Policies are working?” We appreciate comments and suggestions by Dr. Lee, Sangheon at the ILO.