Flexibility, instability and institutional insecurity in Korean labor market

Abstract

This study argues that, in countries having institutional insecurity, policies for labor market flexibility may cause the employer opportunism to rise and that as a consequence, the hoped for gains in efficiency are lessened. This study provides empirical examination of two cornerstones in the Korean government’s policies on labor market flexibility; the deregulation of dismissal law and the liberalization of the legal restraints for hiring irregular workers. As for the deregulation of dismissal law, the initiative was introduced in order to relax limitations on employers’ use of discretion in relation to employment adjustment. We demonstrate that the disorderly manner in which this change was introduced, may in fact have led to employer opportunism. The other cornerstone in government policy for labor market flexibility was the liberalization of the legal restraints for hiring irregular workers. Institutional insecurity in Korean irregular employment provides essential loopholes that enable employers to exploit or evade their legal obligations. These loopholes, a poor monitoring system and ill-defined legal terms loopholes appear to provide an excellent breeding ground or “hotbed” for extensive opportunism. The analysis in this paper may be useful in the development of policy guidelines for other developing countries which seek to promote flexibility. Any institutional insecurity paves the way for opportunism on the part of either employers or employees, and dissipates efficiency in the labor market.