"Korean Labor Market to See Decline in Vacant Jobs After Peak... Different from the US"

Labor Market Shows Similar Strength
But Matching Efficiency Decreases in US and Increases in Korea

[Asia Economy Reporter Seo So-jeong] As South Korea's labor market recovers from the shock of the COVID-19 pandemic, it is forecasted that as the labor market reaches its peak, the number of vacancies will decrease and the unemployment rate will gradually rise to the natural rate of unemployment.

On the 5th, the Bank of Korea stated in its report titled "Labor Market Assessment through the Beveridge Curve: Focusing on Comparison with the United States" that "the pandemic over the past two years has caused structural changes in the labor market, and the employment recovery process shows differentiated patterns by country."

When the Bank of Korea compared changes in the labor market situation after the pandemic using the framework of the Beveridge curve, the movements of the Beveridge curve in South Korea and the United States appeared differently.

The Beveridge curve represents the relationship between the labor supply indicator, the unemployment rate (X-axis), and the labor demand indicator, the vacancy rate (Y-axis), and is generally downward sloping. The downward sloping shape of the Beveridge curve (along the curve) shows that during economic booms, the unemployment rate decreases and the vacancy rate increases, while during recessions, the unemployment rate rises and the vacancy rate falls.

However, as structural characteristics within the labor market change, the Beveridge curve itself can shift upward or downward. For example, an upward shift indicates an increase in frictional factors in the labor market, reducing matching efficiency between job seekers and vacancies, thereby increasing both vacancies and unemployed persons.

According to the Bank of Korea, comparing the movements of the Beveridge curve in South Korea and the United States after the pandemic shows that while movements along the curve were similar, the shifts of the curve were opposite. First, looking at movements along the curve, recently, the unemployment rate has decreased and the vacancy rate has increased, with red dots moving from the lower right to the upper left, a pattern commonly observed in both countries, indicating a favorable labor market.

On the other hand, regarding the shift of the curve (blue line → red line), the Beveridge curve shifted outward (upward) in the United States, whereas in South Korea, it shifted inward (downward). This means that matching efficiency decreased in the U.S. labor market, while it actually improved in South Korea.

Oh Sam-il, Deputy Director of the Employment Analysis Team at the Research Department, said, "The difference in matching efficiency between South Korea and the United States after the pandemic appears to be mainly due to differences in labor supply." He added, "South Korea's labor force participation rate has consistently exceeded pre-pandemic levels except during periods of significant infection spread, whereas the U.S. labor force participation rate sharply declined at the beginning of the pandemic and has yet to recover to pre-pandemic levels." This is explained by issues such as increased voluntary resignations, reduced immigration, and large-scale fiscal support leading to labor supply shortages.

Besides the labor force participation rate, changes in labor supply levels can be examined through the job-filling rate, which indicates how easily companies can fill vacancies. In South Korea, the job-filling rate rose significantly during 2020-2021 as labor supply was sufficient, whereas in the U.S., the job-filling rate temporarily increased at the beginning of the pandemic but has remained below pre-pandemic levels. As a result, vacancies in U.S. companies have not been filled promptly and have accumulated, contributing to lower matching efficiency.

Deputy Director Oh pointed out, "The rise in the job-filling rate based on abundant labor supply has so far acted as a factor mitigating domestic wage pressure. However, since the job-filling rate has fallen to pre-pandemic levels this year, it may act as a factor that fuels wage pressure going forward." Meanwhile, in the U.S., labor supply shortages have caused the job-filling rate to continuously decline since last year, increasing wage pressure.

He said, "In South Korea, since vacancies have not increased significantly compared to before the crisis, the Beveridge curve has shifted downward, and there is little room for economic debate like in the U.S.," adding, "As the labor market reaches its peak in the future, vacancies will somewhat decrease, and the unemployment rate will gradually rise to the natural rate of unemployment."

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