The Bank of Korea "Last Year Natural Unemployment Rate Rose to 3.9%... Recovery Expected This Year"

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] Last year, South Korea's natural unemployment rate was 3.9%, influenced by an increase in long-term unemployed individuals with job search periods of 4 to 6 months.

According to the study "Estimation of Natural Unemployment Rate Using the Distribution of Unemployed by Job Search Duration," analyzed by Deputy Director Oh Sam-il and Researcher Lee Jong-ha of the Employment Analysis Team at the Bank of Korea's Research Department through the BOK Issue Note on the 1st, the natural unemployment rate estimated using the distribution of unemployed by job search duration was around 3.9% in 2020.

Previously, the rate showed a downward trend from 3.7% in 2002 to 3.3% in 2011, but since the 2008 financial crisis, it has shown an upward trend during the 2010s. The natural unemployment rate is the structurally existing long-term equilibrium unemployment rate. This study estimated the rate excluding the influence of the goods market, specifically prices.

The report analyzed that the natural unemployment rate increased as existing unemployed individuals became long-term unemployed due to an increase in new unemployed inflows. Breaking down the natural unemployment rate by job search duration, the upward trend in long-term unemployment with a job search period of 4 to 6 months drove the rise in the natural unemployment rate. While the natural unemployment rate for a 1-month job search period slightly declined after the financial crisis, the natural unemployment rate for job search periods of 2 months or more increased.

In fact, for new unemployed individuals with a 1-month job search period, the average probability of exiting unemployment between 2000 and 2020 was 45%, whereas it dropped to 33% for those with a 4-month job search period. By gender and age, the rise in natural unemployment rates among women and the elderly led the overall increase. This is due to a significant rise in women's economic participation and the tendency of the elderly to remain in the labor market.

Meanwhile, the Bank of Korea added that this year, the unemployment rate was 4.0% last year, 4.4% in the first quarter of this year, and 3.7% in April. According to the Bank of Korea's estimates, this suggests that the unemployment rate this year will approach the Bank's forecast of 3.9%, indicating that the labor market is recovering some balance in terms of unemployment. However, it explained that employment and labor force participation rates may recover somewhat more slowly than the unemployment rate.

This content was produced with the assistance of AI translation services.