Abstract
Purpose This paper analyzes how wages, capital stock, exports, imports, overseas direct invesments (ODI) as well as technical efficiency affect employment elasticity in Korea’s manufacturing industry. Design/Methodology/Approach To analyze determinants of employment elasticity in the manufacturing sector, we measure technical efficiency by using the stochastic production frontier model. Using panel data consisting of 40 manufacturing industries drawn from the Industrial Statistical Analysis System (ISTANS), we clarify what negatively affected employment elasticity during the period between 2005 and 2019. Findings Our empirical analysis shows that ODI and capital have statistically significant and positive effects on employment elasticity while wage and imports have statistically significant and negative effects. Moreover, employment elasticity increases as technical efficiency improves. Our study implies that the establishment of a global network through overseas direct investment contributes to increasing domestic employment. Also, capital appears to have a complementary relationship with employment so that investment is important to increasing employment. Research Implications In the case of manufacturing industries with a comparative disadvantage, it is necessary to promote industrial restructuring to increase technical efficiency and promote the relocation of labor.
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