the re-segmentation of japanese labor market … re-segmentation of japanese labor market...

The Re-segmentation of Japanese labor marketInvestigating the impact of industrial dynamics

Sébastien Lechevalier

(EHESS & EHESS Paris 日仏財団 )

“Developing and Implementing Policies for a Better Future at

Work”, 4th Conference of the Regulating for Decent Work

Network, ILO, Geneva, 8-10 July 2015

Introduction

Lechevalier 2015/7/103

Stylized facts and interpretation

� The Japanese case from the 1990s:1. Deindustrialization;

2. Increasing heterogeneity of firms (organization and performance);

3. Rising wage and employment security inequalities;

4. Rise of non-regular jobs and increasing gap between regular and non regular positions

� We consider that these stylized facts converge toward what we label ‘re-segmentation’ of the labor market

� This is to underline its structural nature and the fact that the lines of cleavages among individuals have been partly renewed


Message

Industrial dynamics (deindustrialization and increasing

heterogeneity of firms) is a powerful mechanism that has changed the

structure of the labor market, which is itself the matrix of inequalities in

Japan


Methodology

A structural analysis of the labor market

as the matrix of inequalities in Japan

� Labor economics connected to industrial economics

(and opened to other dimensions such as welfare, education)

� Historical and institutional analysis, in comparative perspective


Steps of analysis

� Step 1: rising wage inequalities primarily explain rising income

inequalities (+ specifying their form: increasing poverty rates, no

skyrocketing wages in finance, like in the US or the UK)

� Step 2: rising wage differentials are not explained by aging, skill-

biased technical progress or more generally individual

characteristics (age, sex, education)

� Step 3: rising wage differentials are explained by deindustrialization

and increasing productivity differentials across apparently similar

firms

� Step 4: increasing productivity differentials are related to the

emergence of divergent modes of production at the firm level


Content of today’s presentation

� Part 1: Stylized facts

� Part 2: The “re-segmentation” of the Japanese labor market: concepts and historical

perspective

� Part 3: Impact of industrial dynamics on labor

market outcomes

Part 1: Stylized facts


The role of wages in rising income inequalities

� Figure 1: Rising income inequalities

� Figure 2: comparing top income in Japan and in the US; explaining the divergent evolution (Moriguchi & Saez, 2008)

� Step 1 conclusion: contribution of wage inequalities to rising overall inequalities

Figure 2: Moriguchi & Saez (2008)



Disentangling the effect of individual and firm characteristics in rising wage inequalities

� Preliminary remark 1: avoid confusion between (static) structure of inequalities and explanations of rising inequalities (e.g. gender)

� Preliminary remark 2: debate between Ohtake & Tachibanakiregarding the impact of aging

� Kambayashi et al. (2008), Yamaguchi (2013) - decomposition of the overall increase of wage inequalities:

1. Decreasing effects of between age group inequality and between education group inequality, whereas an increasing effect of between-firm size group inequality is observed;

2. Increase in within-group inequality for groups of identical age, education and firm size

� Step 2 conclusion: it is necessary to look at other firms’ characteristics than size


Rising poverty rate and surge of non regular jobs

� Japan as the OECD country that experienced the highest increase of poverty rate between the 1980s and the 2000s (+5%)

� Multiple causes (welfare, families) but evolving labor market is a major one. Number of working poor has been estimated at 3.4 million in early 2000s and has substantially increased since then (Murakami, 2011)

� In this process, the increase of non regular employment in Japan has played an important role (around 80% of new jobs and 35% of employment stock; mostly part-time job and female workers);

� Caution: behind this aggregate rise of non regular employment: increasing disparities across firms in terms of employment practices (DEF survey & Kalantzis et al., 2012)


Employment security inequalities

� Beyond job status…

� From downsizing to unemployment risk;

� Decrease of overall separation rate (“ice-age of the labor market”) but increasing involuntary separation rate

� Unequal risk-sharing

Part 2: The “re-segmentation” of the Japanese labor market: concepts and

historical perspective


Segmentation/re-segmentation

� Definition: Various segments (jobs and workers) with hierarchy and very little mobility between them;

� A criterion: no trade-off between wage and employment security;

� Can be intra- or inter-firms

� The segmented structure is evolving in terms of intensity and lines of cleavage. A historical perspective is required to analyze the evolution of the periphery


Linking firms’ heterogeneity and labor market segmentation: a historical note (1/3)

� 1950s-1960s: 二重構造二重構造二重構造二重構造 (niju kozo): golden age of segmentation

1. Dualism of the Japanese labor market in the 1950s as the basis of inequalities in Japan (mainly size effects; secondly sector effects);

2. Debate on the origin of niju kozo: labor surplus + introduction of new technologies in the 1910s-1930s versus institutional constraints (high wage, role of unions, etc.); the problem with insider/outsider type of explanation is that it overestimates the bargaining power of workers

3. Hierarchy of jobs analyzed through social mobility in the 1960s (non regular in SMEs < regular in SMEs < non regular in GEs < regular in GEs: firms’ characteristics matter more than job status + social integration by GEs)



� 1960s-1970s: “homogeneization” and decay of inequalities1. Relative convergence between the 1960s and the early 1980s

(although there is a debate on the assessment of this trend);

2. Explanation: end of the labor surplus (R. Minami, 1994)

3. This process is not interrupted by the slowdown in the 1970s

4. Low level of inequalities in the 1970s is primarily the product of inclusive labor market (e.g. Koike’s “white-collarization of blue collar workers”)

� Lost Decade (1992-2004): “re-segmentation”1. The lines of cleavages between firms have changed (discrete

heterogeneity: beyond size classes and sectors; see next part);

2. Question: origin of the re-segmentation?



� Post-Lost Decade (from mid-2000s):1. New step in rising inequalities: see figure 1 + rising within group

disparities

2. Modes of adjustment to the Lehman shock reveal changes. Example: end of downward nominal wage rigidity (see various papers by Sachiko Kuroda)

3. Effects of neo-liberal policies that promoted not only institutional change but also diversification of firms

More precisely: financial liberalization as a major source of differentiation (equivalent to the introduction of new technologies in the 1910s-1930s)


Growth, crisis, demography & inequalities

� In general, no straightforward link between crisis and evolution of inequalities (Atkinson & Morelli, 2011)

� Growth & inequality: compare Japan & China (Minami, 2008)

� Crisis, stagnation & inequalities:1. Homogenization was not interrupted by the growth slowdown of the 1970s

2. Deindustrialization matters but is only weakly related to economic stagnation

3. Labor scarcity/surplus is the variable that matters and which is partly related to economic stagnation and weakly to demography

� What makes the difference is the new institutional environment, which is the result of 30 years of 30 neo-liberal reforms

Part 3: Impact of industrial dynamics on labor market outcomes


Industrial dynamics (1): revisiting de-industrialization

� Background deindustrializing Japan: the share of manuf. In total employment decreased from about 27% in 1970 to about 16% in the late 2000s. In terms of absolute numbers, it corresponds to a loss of 3.4 millions jobs (from 13.8 millions to 10.4 millions), which correspond to 25% of total manufacturing employment in 1970

� “Where are all the good jobs gone?” The process has been accompanied by the increase of non regular jobs. For example, according to the Employment Status Survey of 2007, the share of regular workers in manufacturing was 72.8% against 58.3% on average in miscellaneous services and 41.2% in retail

� Caution: the impact of deindustrialization in terms of inequalities depends fundamentally on its underlying causes…


Industrial dynamics (1): revisiting de-industrialization

� Extending the concept, beyond the decrease of the share of

manufacturing in total employment, looking at “job quality” indicators

(skill structure and wage inequalities, job status, job flows, etc.):

“Globalization and labor market outcomes: de-industrialization, job

security, and wage inequalities”, special issue of RWE with J, K, G

and F papers (Lechevalier, 2015):

1. Sato et al. : rise of temporary workers explained by the rising international

exposure of Japanese firms

2. Kiyota & Kambayashi: not only outward FDI has a negative impact on the volume of employment but also explain a significant portion of the rising

wage inequalities


Industrial dynamics (2): increasing diversity of firms

� Increased productivity dispersion among Japanese firms of similar size and belonging to the same narrowly defined sectors=discrete heterogeneity (Ito & Lechevalier, 2009)

� Increasing dispersion of individual speeds of downsizing (Lechevalier et al., 2014)

� From risk of bankruptcy to job insecurity for workers (Ito & Lechevalier, 2010)

Lechevalier 2015/7/1025 25

Evolution of the labor productivity dispersion in manufacturing (Ito & Lechevalier, 2009; BSBSA, 10,000 firms)


Another indicator of the increasing diversity of Japanese firms: evolution of the downsizing speed (Lechevalier, Dossouguin, Hurlin & Takaoka, 2014)

� Panel of 658 listed manufacturing firms extracted from NEEDS & JDB database (1992-2011)

� Labor demand and employment adjustment:

� Result: Decrease of average downsizing speed but increasing dispersion of individual speeds with important implications for workers

∆ log(��) = 0 + 1 log(��) + 2 log(��) + 3 log(��−1) + �� ∆ log(��) < 0


Determinants of firms’ survival in Japan (Ito & Lechevalier, 2010; BSBSA, 1994-2003)

� Leaving aside the distribution of risks within firms for different workers, the risk faced by the workers of a certain firm are directly connected to the survival probability of this firm

� Firm survival equation: Prob (Survival)= F(R&D, X; CV)

CV (Control variables): size, sector, financial status ,etc.

� Result (confirmed by propensity score matching): the survival probability of firms that invest in R&D and that export is higher than for other firms (endogenous differentiation)

� Survival probability: employees of manufacturing firms that invest in R&D and in exports are more relatively more “protected” than others;


Diversity of organization, performance and rising wage inequalities: a theoretical explanation (Kalantzis et al., 2012)

� Aim: connecting productivity dispersion and wage differentials

� Firms belonging to a same sector can choose between 2 types of organization (Max Profit): type I (efficiency wage and employment security; productivity depends on individual effort) and type II(competitive wage and no employment security; exogenous pdty)

� Impact of a drop of aggregate productivity: decreasing share of type-I firms, increasing effort, productivity and wage differentials

� Predictions of the model are empirically confirmed (using matched employer-employer dataset of 9000 firms based on the BSWS and ETS), especially endogenous differentiation of firms and decrease of type-I firms

Conclusions


The re-segmentation of the Japanese labor market (1/2)

� Labor market as the matrix of inequalities;

� Industrial dynamics (deindustrialization and increased discrete heterogeneity) as the major mechanism that explains the evolving structure of labor market and therefore rising inequalities

� Note: what is observed at the level at the industrial structure is comparable to some social trends towards individualization and diversification of Japanese society (sociologists and economists should communicate more…)


The re-segmentation of the Japanese labor market (2/2)

� Beyond the study of industrial dynamics:1. Economic stagnation and demographic shrinkage matter but their

impact should not be overestimated

2. (Gradual) institutional change has aggravated the effect of industrial dynamics, whose characteristics have even been shaped by it (e.g. financial liberalization and corporate diversification)

3. A political economy perspective is required to analyze the impact of (neo-liberal) public policies in this process

� As a whole, rising inequalities reveal something “deep” in the changes that have characterized Japanese capitalism from the 1980s: a “great transformation” (Lechevalier, 2014)


Thank you for your attention

Sébastien [email protected]

http://ffj.ehess.fr/

References


� Ito Keiko & Lechevalier Sébastien (2009), The Evolution of Productivity Dispersion of frms. A Reevaluation of its determinants in the case of Japan, Review of World Economics 145(3): 404–429.

� Kalantzis Yannick, Kambayashi Ryo & Lechevalier Sébastien (2012), Wage and Productivity Differentials in Japan. The role of Labor Market Mechanisms, Labour: Review of Labour Economics and Industrial Relations,

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d’économie, 41(4): 1329--1350.

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the Bubble Burst: New Evidence’ in K. Hamada, A. K. Kashyap & D. E. Weinstein (Eds) Japan's Bubble, Deflation, and Long-term Stagnation, MIT Press.


� Lechevalier S. ed. (2015), ‘Globalization and labor market outcomes: de-industrialization, job security, and wage inequalities’, Special issue, Review of World Economics, 151 (3).

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� Lechevalier S. (2014b),“The ‘Re-segmentation” of the Japanese labor

market. Investigating the impact of industrial dynamics”, Keio University Panel Data Research Center, Discussion Paper n°2014-001

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Heterogeneity of Employment Adjustment Across Japanese Firms. A Study Using Panel Data, KIER Discussion papers series n°883, Kyoto University.


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� Tachibanaki T. (2005) Confronting Income Inequality In Japan: A Comparative Analysis Of Causes, Consequences, And Reform, Cambridge,

MA :The MIT Press.

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Ran Cheng Doctoral candidate

Freie Universität [email protected]

For the 4th Conference of Regulating for Decent Work NetworkInternational Labor Office, Geneva

10 July 2015

Income Inequality in China’s Emerging Economy and Its

Interaction withChina’s Growth Pattern

mailto:[email protected]

• Income inequality in China – Functional income distribution – Wage dispersion– Household and personal Market income distribution

• Income inequality and growth model in China – Growth model in China – Interaction between income inequality and growth

model in China• Introducing wage-led growth model to China

– Wage-led growth model– Minimum wage policy – Wage bargaining

• Conclusions and future work

1. Outline

• A rapid increase in disparities of income distribution was observed during these

decades. China has changed from a country with a fairly even income distribution into a

country with wide income disparities. ——(Han, 2004)

2. Income Inequality in China

2.1 Functional income distribution•Rapid wage growth

•Remarkable decline of labor income share

Figure 1. Unadjusted labor income share in China, 1992-2011

Source: ILO. Global Wage Report 2014/15: Wages and Income Inequality, p27

2.2 Wage dispersion

Figure 2 Urban Wage Inequality in China

Source: Appleton, Song and Xia, 2014, Understanding Urban Wage Inequality in China 1988-2008

2.3 Household and personal market income distribution

Figure 3 Gini Coefficients in China (overall, rural and urban)

Sources: Li and DaCosgta, 2013, Transportation and Income Inequality in China: 1978-2007

2.3 Household and personal market income distribution

Figure 4 Household Saving Rate and Household Income as A Percentages of GDP, 1990-2008, Annual

Notes: Saving rate of urban households = (1 – per capita consumption expenditure) / per capita disposable income. Saving rate of rural households = (1 – per capita total consumption expenditure) / per capita net incomeSource: Knight and Wang, 2010, Are China’s Macroeconomic Imbalances Sustainable?

• Highly driven by investment • Export-oriented

3. Income inequality and the growth model in China 3.1 The growth model in China

Figure 5 Net exports of goods and services, 1992-2007Source: Bergsten, Freeman, Lardy and Mitchell, 2008, China’s Rise: Challenges and Opportunities, p109

• Low consumption

3.1 The growth model in China

Figure 6 The Components of GDP in China, 1999-2008, percentage of GDP

Source: Knight and Wang, 2010, Are China’s Macroeconomic Imbalances Sustainable?

Current Growth Pattern

Highly depend on external-demand

Internal imbalance

Rising current account surplus and weak consumption demand

Less government policy attention

Functional and personal income inequality

Income Inequality

3.2 Interaction between income inequality and growth model in China

Income Inequality

Lower wage share, lower disposable income

Weak domestic consumption demand

Increasingly dependence on the external demand of investment and export

Aggravate the imbalance and unsustainability of economic growth

Growth Pattern

3.2 Interaction between income inequality and growth model in China

“…wages will have to rise broadly in line with (potential) output; labour income shares have to be at least roughly stable in the medium to long run, and may even rise if distribution claims of firms, rentiers, the state or the foreign sector are falling and permit the increase of the labour income share without triggering cumulative inflationary processes

---Eckhard and Mundt (2012)

4. Introducing wage-led growth model in China 4.1 Wage–led growth model

• For China – “income-balanced” growth regime– to reduce the income inequality and at the

same time stimulate domestic demand for a sustainable development

– labor market policy is of great importance

4. Introducing wage-led growth model in China 4.1 Wage–led growth model

• March 1st 2004, full implementation of the minimum wage policy in overall China

• Local governments renew the minimum wage standards at least once every two years

• Challenges: various standards; firm-base enforcement, etc.

4.2 Minimum wage policy in China

• The communication and consultation behavior

• Debate on the All China Federation of Trade Unions (ACFTU) in China

• New opportunities by wage-led growth regime

4.2 Wage bargaining in China

• Gradually adding the wage-led regime• Labor market policy • Future work

– Minimum wage policy and collective bargaining

– Other redistributive policies

5. Conclusion and future work

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Growing Income Inequality and

Transitions to Income-led Growth

in South Korea

Jun Ho Jeong(Kangwon Univ)

Byung You Cheon(Hanshin Univ.)

Jiyeun Chang(Korea Labor Institute)

Jin-wook Shin(Chung-Ang Univ.)

2015. 7.10

ILO 4th RDW Conference The Fourth Conference of the Regulating for Decent Work Network

Contents

Ⅰ. Trends in the Inequality of Korea

Ⅱ. The Macroeconomy and Growth Regime of Korea

Ⅲ. Policies to respond to the inequality and

to restructure the Growth Pattern of Korea.

Polarization (Poverty and Top Income)

↑

Dualization (Labour and Product

markets)

↑

Macroeconomic

Imbalances (Economic and Industrial

Structure)

Social Polcies

Tax Polices

Income Policies

Macro-Economic Policies

Industrial Policies

Structure of Inequality Policy Responses

Ⅰ. Trends in the Inequality of Korea

Polarization and Dualization

- Inequality: Household Income Inequality

- Polarization: Poverty and Top Income

- Dualization: differentials by firm size

0.250

0.260

0.270

0.280

0.290

0.300

0.310

0.320

0.330

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Urban Salary and Wage Worker Household

Urban 2 or more Household

Figure 1. Trends of Gini coefficient in the Household Income(urban household)

Growing Household Income Inequality since mid-1990s

while it declined from mid-1980s to early 1990s.

- kind of Great U-turn of inequality for the three decades

Household Income Inequality

6.0

7.0

8.0

9.0

10.0

11.0

12.0

13.0

14.0

15.0

16.0

0.200

0.220

0.240

0.260

0.280

0.300

0.320

0.340

------ GINI relative poverty rate

Figure 2. Trends in the Relative Poverty Rate, 1990-2014, Korea Relative Poverty rate = below 50 % of median income

Poverty rate has also increased like income inequality.

- the lower part of income distribution was hit harder by the

financial crisis of 1997

Poverty

Source: Hong(2015)

Figure 5. Trends in the Top 1% Income Share

The share of top 1% or 10% of individual income has also increased since mid-1990s

It indicates that the inequality of Korea has the shape of polarization.

The share of labour income in top 1 % income group is around 75%,

which is relatively high in terms of international comparison, kind of ‘working rich’(Hong, 2015).

Top Income Share

Source: Hong(2015)

Figure 6. Trends in the Top 10% Income Share

Top Income Share

Figure 4. Inequality of wage in the labour market(2002, 2012)

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

Sw

eden

Norw

ay

Fin

land

Gre

ece

Icela

nd

Neth

erlands

Japan

Luxe

mbourg

Slo

venia

OECD

e

Cze

ch R

epublic

Slo

vak R

epublic

Mexi

co

Hungary

Portugal

Pola

nd

Kore

a

United S

tate

s

2012 2002

Source: OECD, Note: The incidence of low pay refers to the share of workers earning less than two-thirds of median earnings.

0.0

5.0

10.0

15.0

20.0

25.0

30.0

(%)

2012 2002

P90/P10 Share of Low Paid Workers

The Wage Inequality of Korea is the highest in OECD countries except

the U.S. and Israel.

Wage Inequality in the Labour Market

20

21

22

23

24

25

26

27

28

29

30

19…

19…

19…

19…

19…

19…

19…

20…

20…

20…

20…

20…

20…

20…

(%)

EAPS

Basic Wage Survey (10 or more)

Inequality, in large part, came from labour market

- labour income’s share in total household income is more than 70%

- inequality in the labour market has more worsened

due to the increase of non-regular workers

and the increasing wage differentials between large and small firms

The share of low-paid workers has also increased since mid-1990s

Figure 3. Share of Low-paid Workers

Wage Inequality in the Labour Market

Figure 7. Share of Low Paid Workers and Relative Wage by Size

Firm Size(No. of employees) is major factors of wage differentials in Korea

Dualization: “Firm Size” matters

50.5

33.5

22.0

12.5 8.2

3.7

37.2

47.6

58.8

69.4 74.9

100.0

0.0

20.0

40.0

60.0

80.0

100.0

120.0

1-4 5-9 10-29 30-99 100-299 300 -

(%)

share of low paid worker relative wage(100 if size>300)

Dualization: “Firm Size” matters

27.9

55.8

69.4

79.1

90.4 94.4

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

1-4 5-9 10-29 30-99 100-299 300-

(%)

0.8 2.4

8.1

15.3

25.3

38.1

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

1-4 5-9 10-29 30-99 100-299 300-

(%)

Social Insurance Coverage Rate Union Membership

Ⅱ. The Macroeconomy and Growth Regime of Korea

Declining Growth Rates and Increasing Imbalances in Macroeconomy

- Export-Oriented Growth pattern and declining domestic demand

- Declining Labour’s Share and Growth Without Wage

- Growing Differentials of Income and Savings between Household and Business

Demand Regime of Korea: Wage-Led Growth Regime

Economic Growth depending on Export and Profit, and its limitation

mismatch between the Growth-Regime and the economic growth in reality

Why did not the Domestic Growth Regime of 1986-1996 survive in Korea?

Figure 10. Volume GDP and real net national income in Korea, 1970=1

Source: OECD(2012)

Widening Gap between Production(GDP) and Income(NNI)

- it was due to

deteriorating terms of trade and increasing amount of depreciation of

capital, which were outcomes of the export-oriented growth and ‘assembly

mode of production system’ of Korea

Macroeconomic Imbalance: Production vs Income

Figure 11. Trends in the Labor’s Share

The labor share has been declining since mid-1990 in Korea

40.0

45.0

50.0

55.0

60.0

65.0

70.0

75.0

80.0

85.0

(%) Labour's Share (1)

Labour's Share (2)

labour share(1)=employee's remuneration/national income labour share(2)=employee's remuneration/(national income-profits of individual business)

Macroeconomic Imbalance: Labour vs Capital

55

65

75

85

95

105

115

125

1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

(2007=100)

Figure 12. Trends in the Real Wage and Labour Productivity

The so-called‘ Growth without Wage’ has been more pronounced

since 2008, the Great repression.

- the differential between productivity and wage has increased

_______ Real Wage _______ Labor Productivity(GDP per employee)

Macroeconomic Imbalance: Labour vs Capital

60

70

80

90

0

5

10

15

20

19751977197919811983198519871989199119931995199719992001200320052007200920112013

-------

Business

(left, %)

household

(right, %)

Figure 13. The Share of Net National Income, Household and Business

Widening Gap between Household and Business Increasing income share of business sector and declining share of

household sector after the economic crisis of 1997 in Korea

Macroeconomic Imbalance: Household vs Business

Widening Gap between Household and Business

Increasing savings share of business sector and declining share of

household sector

Figure 14 . Saving’s Rate by Sector

0

5

10

15

20

25

(%)

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011

2014

(%)

Total Private Household

Business

Figure 15 . Saving’s Rate, Business Sector

Macroeconomic Imbalance: Household vs Business

The lower economic growth rate with the worsening inequality

and macro-econmoic imbalances

might be due to the economic growth highly depending on exports

and profits in reality

notwithstanding its nature of wage-led growth regime in Korea

Mismatch: Growth Regime and Growth Pattern in Reality

-0.500

0.000

0.500

1.000

1.500

2.000

Figure 16. Effects of 1% increase of Capital’s Share on Total Demand

Source: Onaran and Galanis(2012)

Wage-Led Profit-Led

The demand regime of Korean economy in the Post-Keynesian

context is wage-led growth regime.

Growth Regime in the Post-Keynesian context

C/Y I/Y NX/Y

Total

Private excess

demand/Y

Period Data

Onaran and Galanis(2012)

+ · – + 1970-2005 Yearly Data

Kim(2013) + + – – 1970-2011 Yearly Data

Hong(2009) + + – + 1970-2008 Yearly Data

Hwang(2009) + · · + 1970-2007 Yearly Data

Hong(2014)

+ + – + · + Before the crisis (1981-1997)

Quarterly Data

+ · – + · + After the crisis (1997-2012)

Quarterly Data

Note: - + : effects of time lagged variables

1% increase of labour’s share → 1.24% increase of final demand(Hong, 2014)

Table 1 . Effects of increase in Labour’s Share on Total Demand in Korea

Growth Regime in the Post-Keynesian context

50.0

60.0

70.0

80.0

90.0

100.0

110.0

120.0

10.0

15.0

20.0

25.0

30.0

35.0

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Ratio of

Foreign Trade to

GPD(%)

Share of

Manufacturing

(%)

Value Added Share (Manufacturing)

Employment Share Share (Manufacturing)

The Export-led growth system has been intensified since the early 1990s in

Korea

- it was led by the large corporations of manufacturing sector, which have been

reducing their employment, the so-called ‘job-less growth’ in manufacturing sector

of Korea.

Figure 17. Share of Manufacturing and Trade Intensity, Korea

Growth Pattern in reality

Korean Economy from mid-1980 to mid-1990

- Inequality index Gini → ↓ - Labour’s share → ↑ - Wage Growth Rate → ↑ - Contribution of Consumption to Growth → ↑ - Trade Intensity → ↓

Why did not the ‘Domestic Demand led Growth Regime’

of mid-1980 ~ mid-1990 persist in Korea?

- Production System

Limits of so-called ‘Assembly Mode of Production System’(Hattori, 2007)

→ low level of social division of labour and weak SMEs

- Geo-economic conditions

China market and the East-Asian Division of Labour

→ the large corporations took the globalization strategies rather than

domestic coordination

- weak Social Coordination

not successful in social coordination of creating good ‘wage-productivity nexus’

Why did not the ‘Domestic Demand led Growth Regime’

of mid-1980 ~ mid-1990 persist in Korea?

0

20

40

60

80

100

LUX SGP Korea THA CHN MEX SWE DEU OECD APEC HK CHL NLD US JPN AUS BRA

(%)

Figure 19. Domestic Value Added Share of Gross Export(%)

- import high-tech part and materials from developed countries(particularly, Japan)

export finished goods to emerging markets(particularly, China)

→ low level of domestic value added share of export

→ growing vulnerability of small-medium sized firms with domestic base

‘Assembly Mode of Production System’

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

(%)

Import from China Export to China Import from US Export to US

China Effects

The deepening of export-led growth system in Korea has its geo-economic

background

Figure 18. Share of Export and Import of Korea, to and from the U.S. and China

Changes in Geo-Economic Condition

Income Policy is necessary, in particular for lower-paid workers

We think that the first priority should be on minimum wage policy,

then, should overcome the dualization of labour and productive market,

should consider self-employment and small firms,

should be powerful to change the growth pattern in reality,

should be kind of Korean version of Solidarity Wage

Enforcing labour standard act strictly, and enhancing social insurance

coverage for workers of SMEs, and empowering labour in industrial

relations, particularly in SMEs

Policy Responses

Plausible Policies for the Inclusive and Sustainable Growth of Korea

Income Policy should be complemented

by industrial policies, social policies, re-distributional policies , and macro-economic policies.

Innovation Polices of boosting SMEs

- creating another modernized economic unit

in addition to the so-called Chaebol(large enterprises group)

- creating ‘Industrial Commons’ (innovation cluster), which would enhance cooperation and trust between SMEs, rather than direct financial assistances to SMSs

Policy Responses

Social Policies for the Poor

Progressive Tax Policies in response to Top Income issues

Macroeconomic Policies

- Limits of traditional Keynesian monetary and fiscal policies - FERIR(Full Employment Real Interest Rate) -> Instability of Financial Market

current interest rate of Korea is 1.5%(historically the lowest)

Public investment policies

- creating ‘Public Commons’ in the sector of energy, environment, and social services(health and care service),

- The share of assets owned by government is around 25%, one of the highest in OECD countries

Policy Responses

the re-segmentation of japanese labor market … re-segmentation of japanese labor market...

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