The Effect of Protection of Temporary Workers on Employment Levels: Evidence from the 2007 Reform of South Korea

Abstract

The authors investigate the effects of recent South Korean labor reform, which was designed to protect temporary workers, on the level of temporary, permanent, and overall employment in that country. Because the effects of employment protection legislation (EPL) on employment levels remain theoretically ambiguous, they must be determined by empirical analysis. The impacts of the reform on both temporary and overall employment are negative at first and fade away in two years after the reform, hence taking a U-shape in the post-reform period. The impact of the reform on permanent employment is, however, positive two years after the reform. At least in the short run, an increase in protection for workers comes at a cost of reduced levels of employment.