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Labor market duality is a complex and critical issue for many countries that can lower productivity, contribute to inequality and result in negative externalities. In this paper, I study duality in the Korean labor market and analyze its sources and potential policy options. I find that employment protection legislations and large productivity differentials are the key drivers of Korea’s duality. In addition, applying a general equilibrium search-and-matching model and calibrating it to the Korean economy, I show that well-calibrated flexicurity policies can significantly reduce duality and inequality and raise welfare and productivity. Notably, the introduction of all three pillars—flexiblity, a strong safety net and active labor market policies—is critical for its success. If only one pillar is introduced it can result in negative side-effects and might not reduce duality.

Labor --- Macroeconomics --- Employment --- Unemployment --- Wages --- Intergenerational Income Distribution --- Aggregate Human Capital --- Aggregate Labor Productivity --- Labor Economics Policies --- Labor Force and Employment, Size, and Structure --- Demand and Supply of Labor: General --- Wages, Compensation, and Labor Costs: General --- Labor Economics: General --- Labour --- income economics --- Labor markets --- Active labor market policies --- Economic theory --- Labor market --- Labor economics --- Manpower policy --- Korea, Republic of

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This paper focusses on income inequality in Asia, its drivers and policies to combat it. It finds that income inequality has risen in most of Asia, in contrast to many regions. While in the past, rapid growth in Asia has come with equitable distribution of the gains, more recently fast-growing Asian economies have been unable to replicate the “growth with equity” miracle. There is a growing consensus that high levels of inequality can hamper the pace and sustainability of growth. The paper argues that policies could have a substantial effect on reversing the trend of rising inequality. It is imperative to address inequality of opportunities, in particular to broaden access to education, health, and financial services. Also fiscal policy could combat rising inequality, including by expanding and broadening the coverage of social spending, improving tax progressivity, and boosting compliance. Further efforts to promote financial inclusion, while maintaining financial stability, can help.

Labor --- Macroeconomics --- Personal Income, Wealth, and Their Distributions --- Equity, Justice, Inequality, and Other Normative Criteria and Measurement --- Economic Development: Human Resources --- Human Development --- Income Distribution --- Migration --- Aggregate Factor Income Distribution --- Education: General --- Wages, Compensation, and Labor Costs: General --- Education --- Labour --- income economics --- Income inequality --- Income distribution --- Personal income --- Labor share --- National accounts --- Income --- Wages --- India