State dependence, individual heterogeneity, and the choice of employment status: evidence from Korea

Abstract

ABSTRACTFocusing on the individual heterogeneity, this article examines the causes of an individual’s employment status choice and the extent of state dependence in the Korean labour market. We estimate a dynamic multinomial logit model using the panel data drawn from the first to fifteenth wave of the Korean Labour and Income Panel Study. The results suggest the presence of state dependence. Individual characteristics and growth background have a significant effect on the choice of employment status. Gender is still an important employment factor; males are more likely to be employed and this gender effect is highest for regular employment (RE). One’s educational attainment and age operate in opposite directions. That is, educational attainment (age) has a positive (negative) impact on the choice of a regular job and a negative (positive) impact on the choice of a non-regular job. Contrary to our expectations, a wealthy family background reduces the probability of individuals being wage workers, and raises the probability of them being unemployed. The barriers to RE are greater than for non-regular employment. These findings are of great importance for designing policies to effectively address unemployment and labour informality problems in Korea.