An Analysis on the Determinants of Demand of Low-educated Labor in Korean Manufacturing Industry

Abstract

Purpose– The purpose of this study was to empirically analyze what elements determines the demand of low-educated labor which has caused income inequality and unstable employment in Korean manufacturing industry. Design/methodology/approach– This study set up the trans-log cost function which led to the derivation of demand function of low-educated labor by using Shephard’s lemma. Based on the demand function and the data issued by National Statistical Office, the regression analysis was implemented with the method of fully-modified ordinary least square. Findings–First, The relative wage of high-educated labor in terms of that of low-educated lobor is negatively related with demand of low-educated labor. It means that there is a complementary relation between two labors. Second, globalization also negatively influences demand of the labor. It means that globalization may trigger unemployment and thus lessen the demand of the labor because of comparative disadvantage of its labor-intensive industry. Third, other variables including technical progress, the ratio of physical capital to the amount of total production are not statistically significant. Conclusively the relative wage and globalization are the main determinants of demand of low-educated labor in Korean manufacturing industry. Research implications or Originality–The wage differential of two labors is extended in the labor market of manufacturing sector. Moreover globalization will be steadily progressed in the future. According to the results of this study, two factors - the relative wage and globalization-will produce the large unemployment of low-educated labor. So the polices are needed to promote its labor-biased technical innovation and to prepare social safety net to support them.