Reassessing the Inflows and Outflows of Unemployment in Korea
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Using data from the Economically Active Population Survey from 1986 to 2014, we comprehensively examine Korean unemployment dynamics using worker flows: inflow rates and outflow rates. We estimate both flow rates by carefully correcting for time aggregation bias, and quantify the contribution of changes in each flow rate to unemployment variability through steady-state and non-steady-state decompositions. Our baseline analysis reports the average of inflow rates as 1.6% and that of outflow rates as 48%. Moreover, despite the small size of the inflow rates, inflows account for 90% of unemployment variability. The significant contribution of inflows to unemployment fluctuation still appears even under a three-state model that includes inactive workers and heterogeneous flow rates by reasons for unemployment. The large contribution of inflows to unemployment changes despite high outflow rates is a unique feature of the Korean labor market not seen in previous studies of OECD countries.
Abstract
Using data from the Economically Active Population Survey from 1986 to 2014, we comprehensively examine Korean unemployment dynamics using worker flows: inflow rates and outflow rates. We estimate both flow rates by carefully correcting for time aggregation bias, and quantify the contribution of changes in each flow rate to unemployment variability through steady-state and non-steady-state decompositions. Our baseline analysis reports the average of inflow rates as 1.6% and that of outflow rates as 48%. Moreover, despite the small size of the inflow rates, inflows account for 90% of unemployment variability. The significant contribution of inflows to unemployment fluctuation still appears even under a three-state model that includes inactive workers and heterogeneous flow rates by reasons for unemployment. The large contribution of inflows to unemployment changes despite high outflow rates is a unique feature of the Korean labor market not seen in previous studies of OECD countries.
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